China's Renaissance: Global Strategies in 21st Century (Research Series on the Chinese Dream and China’s Development Path) 9811622922, 9789811622922

Table of contents :
Series Preface
Contents
1 Introduction
1.1 The Thorny Road to Revival
1.1.1 Containment from Outside and Complicated International Relations
1.1.2 The Threat of Domestic Unrest
1.2 China’s International Relations and Strategy: Retrospect and Prospect
1.2.1 The People Republic of China’s International Relations and Strategy
1.2.2 The Need for In-Depth Research on China’s Future International Relations Strategy
1.3 An Economic Analysis of China’s International Relations: A New Logical Framework
Part I China’s International Relations: Population, Resources and Environment
2 Population Development and Resource Balance
2.1 Defeat Without a War: The Decline in the Chinese Nation’s Scale and Quality
2.1.1 The Family Planning Policy Has Put the Country in a Predicament
2.1.2 The Threat of GM Food to the Sustainability and Quality of the Chinese Nation
2.2 Demand and Shortfall for Key Resources
2.2.1 Energy
2.2.2 Iron Ore
2.2.3 Land
2.2.4 Freshwater
2.3 China’s Future International Relations Strategy for Population and Resources
2.3.1 From Family Planning to Encouraging Birth
2.3.2 The External Resource Balance Strategy
3 Global Warming and China’s Development
3.1 China in International Climate Talks
3.1.1 The Position of the BASIC and that of the Group of 77
3.1.2 China’s Position in International Climate Talks
3.2 China’s Strategy and Tactics
3.2.1 Proactively Reducing Emissions and Establishing a Low-Carbon Development Model
3.2.2 Promoting Technological Innovation and Seizing a Favorable Position in Low-Carbon Economy
3.2.3 Seeking a Leading Role in Addressing International Climate Change Issues
3.3 Discussion on China’s Environmental Strategy for the Twenty-First Century
3.3.1 Starting Carbon Emission Transaction to Lower the Cost of Emissions Reduction
3.3.2 Taking the Initiative to Lead Climate Cooperation Among Developing Countries
3.3.3 Improving Coordination with the Other BASIC Countries
3.3.4 Projecting the Image of a Great Power Rising “in a Green Way”
Part II Boosting China’s External Competitiveness
4 China’s Technological Competitiveness: Status and Gap
4.1 China’s World Status in Technological Competitiveness
4.1.1 The International Status of Competitiveness
4.1.2 Competitiveness: Inadequate Input and Output
4.1.3 Comparison in Global Innovation Capacity
4.2 Catching Up with and Overtaking Technologically Advanced Countries: China’s Strategic Choices
4.3 Conclusion and Prospects: Innovation-Oriented Nation and the National Competitiveness Pattern
Part III China’s Trade and Currency Strategies
5 China’s Trade Strategy Amid Economic Globalization
5.1 The Four Key Points of the “Value Chain Climbing Strategy”
5.1.1 Promoting Innovative R&D for Greater Innovation Capacity at the Front End of the Value Chain
5.1.2 Developing Brands to Enhance Soft Power at the Rear End of the Value Chain
5.1.3 Encouraging Enterprises to Build a Global Marketing Network
5.1.4 Increasing Pricing Power in Commodity Trade
5.2 Implementing a Win–Win Trade Strategy
5.2.1 The Global Climate for the Win–Win Trade Strategy
5.2.2 Practical Demand for the Win–Win Trade Strategy
5.2.3 An All-Dimensional and Multilevel Win–Win Trade Strategy
6 China’s Development and the Future World Monetary System
6.1 The Future Trend of RMB Appreciation
6.2 The RMB Appreciation Strategy and How to Avoid Exchange Rate-Related Losses
6.2.1 Risks of Loss in Foreign Exchange Reserves Due to Exchange Rate Fluctuations
6.2.2 The Strategy and Tactics for RMB Appreciation
6.3 The RMB Internationalization Strategy
6.4 The Global Monetary Pattern and the Forming of the Chinese Yuan System
Part IV China and the US in the 21st Century: Relations and Geopolitical Strategy
7 China and the USA in the Twenty-First Century: Conflicting Interest and Strategic Choice
7.1 Future Conflict of Interests Between China and the USA: Judgment and Summary
7.1.1 A Summary of Future Conflicts
7.1.2 Possible Future Conflicts Between China and the United States Over National Interests
7.2 The National Interest-Based Strategies and Actions of China and the USA
7.2.1 The US: Vying with China for Future Global Leadership
7.2.2 China: Ensuring Internal Stability and Never Taking the Lead
7.2.3 Strategic Priority: Preventing Internal Upheavals and Ensuring Lasting Freedom from Decline
7.3 China’s Bargaining Strategy and Tactics Toward the USA
7.3.1 Another Battlefront: Economic Contests
7.3.2 War Between the RMB and the US Dollar
7.3.3 War in Investment, Trade, Regional Cooperation, and Technological Competition
7.3.4 China’s Military Strategy of Active Defense
8 China's Geopolitical Environment and Relations Strategy
8.1 A Sequence of China’s National Interests in Various Parts of the World
8.2 China’s Geopolitical Strategy
8.2.1 Assigning a Leading Role to Economic Means and a Supplementary One to Military Means
8.2.2 Developing Economic Ties with All Countries Around the World and Assuming Different Military Postures Based on Distance
8.2.3 Overcoming the USA’s Containment of China
8.2.4 Getting Prepared for a Limited War Within Ten Years
Part V China’s Peaceful Civilizational Revival
9 Soft Power and the Chinese Civilization
9.1 Assessment of China’s Cultural Soft Power: Strengths and Weaknesses
9.1.1 Traditional Chinese Culture: Ideals and Elements to Reform
9.1.2 The Development and Refinement of China’s Political Culture
9.1.3 Education and the Culture Industry: Strengths and Weaknesses
9.1.4 The Spread of Chinese Culture Abroad: Achievements and Challenges
9.2 The Strategic Goal of China’s Cultural Development in the First Half of the Twenty-First Century
9.3 Concrete Plan for the Future of Chinese Culture
9.3.1 Increasing the International Influence of Chinese Culture
9.3.2 Promoting a Transition Towards an Export-Oriented Mode of Cultural Development
9.3.3 Furthering Multilateral Dialogue and Cooperation Between Cultures
9.3.4 Enhancing Mutual Understanding and Confidence Between China and Other Countries
9.3.5 Protecting and Expanding the Nation’s Cultural Security-Related Interests
9.4 Conclusion
10 Peaceful Development and National Rejuvenation
10.1 China’s Path of Peaceful Development
10.1.1 Peaceful Development: Definition and Meaning
10.1.2 Socialism and China’s Path of Peaceful Development
10.1.3 Key Objectives in China’s Path of Peaceful Development
10.2 The Great Rejuvenation of the Chinese Nation
10.2.1 The Most Difficult Eight Years (2013–2020)
10.2.2 The Thriving Decade (2020–2030)
10.2.3 The Great Rejuvenation of the Chinese Nation (2030–2040)

Citation preview

Research Series on the Chinese Dream and China’s Development Path

Tianyong Zhou

China’s Renaissance: Global Strategies in 21st Century

Research Series on the Chinese Dream and China’s Development Path Series Editors Yang Li, Chinese Academy of Social Sciences, Beijing, China Peilin Li, Chinese Academy of Social Sciences, Beijing, China

Drawing on a large body of empirical studies done over the last two decades, this Series provides its readers with in-depth analyses of the past and present and forecasts for the future course of China’s development. It contains the latest research results made by members of the Chinese Academy of Social Sciences. This series is an invaluable companion to every researcher who is trying to gain a deeper understanding of the development model, path and experience unique to China. Thanks to the adoption of Socialism with Chinese characteristics, and the implementation of comprehensive reform and opening-up, China has made tremendous achievements in areas such as political reform, economic development, and social construction, and is making great strides towards the realization of the Chinese dream of national rejuvenation. In addition to presenting a detailed account of many of these achievements, the authors also discuss what lessons other countries can learn from China’s experience. Project Director Shouguang Xie, President, Social Sciences Academic Press Academic Advisors Fang Cai, Peiyong Gao, Lin Li, Qiang Li, Huaide Ma, Jiahua Pan, Changhong Pei, Ye Qi, Lei Wang, Ming Wang, Yuyan Zhang, Yongnian Zheng, Hong Zhou

More information about this series at http://www.springer.com/series/13571

Tianyong Zhou

China’s Renaissance: Global Strategies in 21st Century

Tianyong Zhou Party School of the Central Committee of C.P.C. Beijing, China

ISSN 2363-6866 ISSN 2363-6874 (electronic) Research Series on the Chinese Dream and China’s Development Path ISBN 978-981-16-2292-2 ISBN 978-981-16-2293-9 (eBook) https://doi.org/10.1007/978-981-16-2293-9 Jointly published with Social Sciences Academic Press The print edition is not for sale in China (Mainland). Customers from China (Mainland) please order the print book from: Social Sciences Academic Press. © Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 This work is subject to copyright. All rights are reserved by the Publishers, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Series Preface

Since China’s reform and opening began in 1978, the country has come a long way on the path of Socialism with Chinese characteristics, under the leadership of the Communist Party of China. Over 30 years of reform, efforts and sustained spectacular economic growth have turned China into the world’s second largest economy, and wrought many profound changes in the Chinese society. These historically significant developments have been garnering increasing attention from scholars, governments, and the general public alike around the world since the 1990s, when the newest wave of China studies began to gather steam. Some of the hottest topics have included the so-called “China miracle”, “Chinese phenomenon”, “Chinese experience”, “Chinese path”, and the “Chinese model”. Homegrown researchers have soon followed suit. Already hugely productive, this vibrant field is putting out a large number of books each year, with Social Sciences Academic Press alone having published hundreds of titles on a wide range of subjects. Because most of these books have been written and published in Chinese, however, readership has been limited outside China—even among many who study China—for whom English is still the lingua franca. This language barrier has been an impediment to efforts by academia, business communities, and policy-makers in other countries to form a thorough understanding of contemporary China, of what is distinct about China’s past and present may mean not only for her future but also for the future of the world. The need to remove such an impediment is both real and urgent, and the Research Series on the Chinese Dream and China’s Development Path is my answer to the call. This series features some of the most notable achievements from the last 20 years by scholars in China in a variety of research topics related to reform and opening. They include both theoretical explorations and empirical studies, and cover economy, society, politics, law, culture, and ecology, the six areas in which reform and opening policies have had the deepest impact and farthest-reaching consequences for the country. Authors for the series have also tried to articulate their visions of the “Chinese Dream” and how the country can realize it in these fields and beyond. All of the editors and authors for the Research Series on the Chinese Dream and China’s Development Path are both longtime students of reform and opening and v

vi

Series Preface

recognized authorities in their respective academic fields. Their credentials and expertise lend credibility to these books, each of which having been subject to a rigorous peer review process for inclusion in the series. As part of the Reform and Development Program under the State Administration of Press, Publication, Radio, Film, and Television of the People’s Republic of China, the series is published by Springer, a Germany-based academic publisher of international repute, and distributed overseas. I am confident that it will help fill a lacuna in studies of China in the era of reform and opening. Shouguang Xie

Contents

1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 The Thorny Road to Revival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1.1 Containment from Outside and Complicated International Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1.2 The Threat of Domestic Unrest . . . . . . . . . . . . . . . . . . . . . 1.2 China’s International Relations and Strategy: Retrospect and Prospect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2.1 The People Republic of China’s International Relations and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2.2 The Need for In-Depth Research on China’s Future International Relations Strategy . . . . . . . . . . . . . . . 1.3 An Economic Analysis of China’s International Relations: A New Logical Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part I 2

1 2 2 3 6 6 9 12

China’s International Relations: Population, Resources and Environment

Population Development and Resource Balance . . . . . . . . . . . . . . . . . . 2.1 Defeat Without a War: The Decline in the Chinese Nation’s Scale and Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.1 The Family Planning Policy Has Put the Country in a Predicament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.2 The Threat of GM Food to the Sustainability and Quality of the Chinese Nation . . . . . . . . . . . . . . . . . . . 2.2 Demand and Shortfall for Key Resources . . . . . . . . . . . . . . . . . . . . 2.2.1 Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Iron Ore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.4 Freshwater . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23 23 24 28 29 29 31 33 35

vii

viii

Contents

2.3

3

Global Warming and China’s Development . . . . . . . . . . . . . . . . . . . . . . 3.1 China in International Climate Talks . . . . . . . . . . . . . . . . . . . . . . . . 3.1.1 The Position of the BASIC and that of the Group of 77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.2 China’s Position in International Climate Talks . . . . . . . . 3.2 China’s Strategy and Tactics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 Proactively Reducing Emissions and Establishing a Low-Carbon Development Model . . . . . . . . . . . . . . . . . 3.2.2 Promoting Technological Innovation and Seizing a Favorable Position in Low-Carbon Economy . . . . . . . . 3.2.3 Seeking a Leading Role in Addressing International Climate Change Issues . . . . . . . . . . . . . . . . . 3.3 Discussion on China’s Environmental Strategy for the Twenty-First Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Starting Carbon Emission Transaction to Lower the Cost of Emissions Reduction . . . . . . . . . . . . . . . . . . . . 3.3.2 Taking the Initiative to Lead Climate Cooperation Among Developing Countries . . . . . . . . . . . . . . . . . . . . . . 3.3.3 Improving Coordination with the Other BASIC Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.4 Projecting the Image of a Great Power Rising “in a Green Way” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II 4

China’s Future International Relations Strategy for Population and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 From Family Planning to Encouraging Birth . . . . . . . . . . 2.3.2 The External Resource Balance Strategy . . . . . . . . . . . . .

36 36 39 43 43 44 45 47 48 51 55 56 56 57 58 58

Boosting China’s External Competitiveness

China’s Technological Competitiveness: Status and Gap . . . . . . . . . . 4.1 China’s World Status in Technological Competitiveness . . . . . . . . 4.1.1 The International Status of Competitiveness . . . . . . . . . . 4.1.2 Competitiveness: Inadequate Input and Output . . . . . . . . 4.1.3 Comparison in Global Innovation Capacity . . . . . . . . . . . 4.2 Catching Up with and Overtaking Technologically Advanced Countries: China’s Strategic Choices . . . . . . . . . . . . . . . 4.3 Conclusion and Prospects: Innovation-Oriented Nation and the National Competitiveness Pattern . . . . . . . . . . . . . . . . . . . .

61 61 62 65 67 69 73

Part III China’s Trade and Currency Strategies 5

China’s Trade Strategy Amid Economic Globalization . . . . . . . . . . . . 5.1 The Four Key Points of the “Value Chain Climbing Strategy” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

77 77

Contents

ix

5.1.1

5.2

6

Promoting Innovative R&D for Greater Innovation Capacity at the Front End of the Value Chain . . . . . . . . . 5.1.2 Developing Brands to Enhance Soft Power at the Rear End of the Value Chain . . . . . . . . . . . . . . . . . . 5.1.3 Encouraging Enterprises to Build a Global Marketing Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.4 Increasing Pricing Power in Commodity Trade . . . . . . . . Implementing a Win–Win Trade Strategy . . . . . . . . . . . . . . . . . . . . 5.2.1 The Global Climate for the Win–Win Trade Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.2 Practical Demand for the Win–Win Trade Strategy . . . . 5.2.3 An All-Dimensional and Multilevel Win–Win Trade Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

China’s Development and the Future World Monetary System . . . . 6.1 The Future Trend of RMB Appreciation . . . . . . . . . . . . . . . . . . . . . 6.2 The RMB Appreciation Strategy and How to Avoid Exchange Rate-Related Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.1 Risks of Loss in Foreign Exchange Reserves Due to Exchange Rate Fluctuations . . . . . . . . . . . . . . . . . . . . . . 6.2.2 The Strategy and Tactics for RMB Appreciation . . . . . . . 6.3 The RMB Internationalization Strategy . . . . . . . . . . . . . . . . . . . . . . 6.4 The Global Monetary Pattern and the Forming of the Chinese Yuan System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

77 78 78 79 79 80 80 81 85 85 88 88 91 93 96

Part IV China and the US in the 21st Century: Relations and Geopolitical Strategy 7

China and the USA in the Twenty-First Century: Conflicting Interest and Strategic Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Future Conflict of Interests Between China and the USA: Judgment and Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1.1 A Summary of Future Conflicts . . . . . . . . . . . . . . . . . . . . . 7.1.2 Possible Future Conflicts Between China and the United States Over National Interests . . . . . . . . . 7.2 The National Interest-Based Strategies and Actions of China and the USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.1 The US: Vying with China for Future Global Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 China: Ensuring Internal Stability and Never Taking the Lead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.3 Strategic Priority: Preventing Internal Upheavals and Ensuring Lasting Freedom from Decline . . . . . . . . . . 7.3 China’s Bargaining Strategy and Tactics Toward the USA . . . . . . 7.3.1 Another Battlefront: Economic Contests . . . . . . . . . . . . . 7.3.2 War Between the RMB and the US Dollar . . . . . . . . . . . .

105 105 105 108 111 111 117 122 125 125 126

x

Contents

7.3.3 7.3.4 8

China’s Geopolitical Environment and Relations Strategy . . . . . . . . . 8.1 A Sequence of China’s National Interests in Various Parts of the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 China’s Geopolitical Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2.1 Assigning a Leading Role to Economic Means and a Supplementary One to Military Means . . . . . . . . . . 8.2.2 Developing Economic Ties with All Countries Around the World and Assuming Different Military Postures Based on Distance . . . . . . . . . . . . . . . . . 8.2.3 Overcoming the USA’s Containment of China . . . . . . . . 8.2.4 Getting Prepared for a Limited War Within Ten Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part V 9

War in Investment, Trade, Regional Cooperation, and Technological Competition . . . . . . . . . . . . . . . . . . . . . 129 China’s Military Strategy of Active Defense . . . . . . . . . . 132 135 135 136 136

137 137 138

China’s Peaceful Civilizational Revival

Soft Power and the Chinese Civilization . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Assessment of China’s Cultural Soft Power: Strengths and Weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.1 Traditional Chinese Culture: Ideals and Elements to Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.2 The Development and Refinement of China’s Political Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.3 Education and the Culture Industry: Strengths and Weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.4 The Spread of Chinese Culture Abroad: Achievements and Challenges . . . . . . . . . . . . . . . . . . . . . . 9.2 The Strategic Goal of China’s Cultural Development in the First Half of the Twenty-First Century . . . . . . . . . . . . . . . . . 9.3 Concrete Plan for the Future of Chinese Culture . . . . . . . . . . . . . . 9.3.1 Increasing the International Influence of Chinese Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.2 Promoting a Transition Towards an Export-Oriented Mode of Cultural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.3 Furthering Multilateral Dialogue and Cooperation Between Cultures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.4 Enhancing Mutual Understanding and Confidence Between China and Other Countries . . . . . . . . . . . . . . . . . 9.3.5 Protecting and Expanding the Nation’s Cultural Security-Related Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

141 141 142 144 145 147 148 151 151

152 153 154 155 155

Contents

10 Peaceful Development and National Rejuvenation . . . . . . . . . . . . . . . . 10.1 China’s Path of Peaceful Development . . . . . . . . . . . . . . . . . . . . . . 10.1.1 Peaceful Development: Definition and Meaning . . . . . . . 10.1.2 Socialism and China’s Path of Peaceful Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1.3 Key Objectives in China’s Path of Peaceful Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 The Great Rejuvenation of the Chinese Nation . . . . . . . . . . . . . . . . 10.2.1 The Most Difficult Eight Years (2013–2020) . . . . . . . . . . 10.2.2 The Thriving Decade (2020–2030) . . . . . . . . . . . . . . . . . . 10.2.3 The Great Rejuvenation of the Chinese Nation (2030–2040) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

xi

157 157 157 158 161 168 168 176 178

Chapter 1

Introduction

If the earth were a big pasture we all share, each nation or country would be a family living on it. They would all be economically connected to one another as differences among them in resources, population and other natural endowments give rise to the need for exchange, division of labor and cooperation—this is why we have tariffs, currencies, free trade zones, and other elements of international economic systems and institutions. They have to deal with each other politically, which necessitates bilateral and multilateral negotiations as well as diplomatic relations. To provide security against invasion or harassment from their neighbors, each of them has to establish their own armed forces and intelligence service. They also need to discuss issues of public concern like global warming and deforestation, deal with public affairs between them and, in particular, reach a consensus on codes and conduct as well as an international economic and political order; this explains the post-WWII endeavors towards such political governance frameworks as the United Nations, the WTO, the World Bank, the IMF, and the International Court of Justice. Such are the international relations, the international relations strategies of individual countries, and the global political order. It is worth noting that an individual country must adapt to changes in the international environment, rather than the other way around. While countries may help shape the international environment, throughout history no country, not even the world’s great powers, has ever been able to transform the international environment to meet its own needs. Based on these understandings, I, as a scholar, want to make an impartial study of the future of China’s international relations, especially relations with the USA. Some of my opinions may seem alarmist, such as the likelihood of big trouble in China, the challenges of population decline and structural aging, the unpopularity of our values and concepts, and the USA’s decline in the long run. However, unwelcome as they might be, discussions about the results and predicament of non-cooperative games may better inform decisions by both countries and their shift toward a mutually beneficial strategy that allows for cooperative competition. © Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_1

1

2

1 Introduction

1.1 The Thorny Road to Revival Why have I written this book and named it The Thorny Road to Revival? China’s national interests dictate the revival of the Chinese civilization as well as the rejuvenation and modernization of the nation in the twenty-first century. However, the road to that bright future will be tortuous and difficult. The next decade will be particularly crucial, with grim situations outside and ominous prospects inside. Can China pull through the critical and hard times, and take the high road to revival?

1.1.1 Containment from Outside and Complicated International Relations In terms of foreign relations, the next ten years may be the most challenging for China’s revival throughout the twenty-first century. The USA began to rise in the twentieth century and became a world leader after the collapse of the Soviet Union. With a population three times that of the USA, China’s economy is bound to surpass the US economy in aggregate size during the twenty-first century. For its part, the USA will try to maintain its leadership and its most vital national interests in this century. China’s repeated denial of any wish to seek world leadership has failed to reassure the USA, which has made it an important mission to suppress China’s revival so as to protect its national interests. In terms of China’s relations with its neighbors, there is Russia to the north, with its desire to revive its power and vigilance against China; to the west, there is US intervention in the affairs of Afghanistan and Central Asia; to the southwest, there is India, which still harbors grievances from the past; the USA is also trying to win over Myanmar, which is situated to the south of China; to the northeast and southeast, Vietnam, the Philippines, and Japan have territorial disputes with China on the land or the sea. These are coupled with US alliances with Japan and the Philippines and unpredictable situation in DPRK. China’s rise in Asia has produced mixed feelings in some of its neighboring countries, which, out of fear that their interests might be affected, have placed themselves on guard against China or even enlisted US backing. The USA, in response, has shifted its strategic focus from Central Asia to the West Pacific to form a pattern of containment against China. In the next decade, the USA will continue to see an increase in the number of immigrants and maintain a young demographic. It will attract capital from countries around the world, including China. It will curb its debts and deficits, protect the prestige of the US dollar, suppress the rise of the euro, and try to stop the expansion of the RMB. It will continue to lead the world in science and technology, reindustrialize itself, and revive its manufacturing industries. In short, it will try to stay a youthful country in the twenty-first century and protect its leadership from any challenges.

1.1 The Thorny Road to Revival

3

Regarding its national interests, in the next decade, the USA will surely use its smart power and pursue a strategy of containment and attrition toward China through diplomatic maneuvers. China’s competitiveness in science and technology remains no match for that of the USA, though the gap is narrowing. There are political reasons that prevent it from forming free trade zones or achieving mutual complementation economically with Japan and ROK. A great proportion of its financial strength will be spent on responding to US military besiegement and frictions with its neighboring countries. China relies heavily on crude oil from the Middle East, which is likely to grow as private automobile ownership continues to increase. As a result of its energy revolution, the USA is likely to withdraw from the Middle East and shift eastward to the West Pacific. After that, for the security of its oil supply, China may have to take over from the USA the responsibility for preserving order in the Middle East. In the past decade, extreme communism has become repugnant to the people and political parties in many countries because of the havoc it wrought on humanity in the twentieth century. It is also one of the three tasks, alongside Nazism and terrorism/religious extremism, whose revival the USA has vowed to forestall for the sake of world security in the twenty-first century. As a result, we may find the communist ideals we hold dear unpopular as never before. However, for a great power, economic strength is fundamental to its relations with other countries. By 2022, China’s GDP will have caught up with that of the USA. China will have come of age, whereas the USA is already middle-aged. As a result, from that point on, in proportion to the growth of China’s national strength, US-backed provocations from some of its neighbors may dwindle or even disappear. Many countries will instead be thinking about how to benefit from China’s development; besides, China will be more capable of assisting these countries and taking on more international obligations, thereby forging closer ties with its neighbors for cooperation and common development. It must be noted that, in the longer term, i.e., by 2020 and especially after 2030, deceleration of birth rate increase and population aging, already the largest threat the country faces, will continue. Reliable projections suggest that over the second half of the twenty-first century, the Chinese population may begin to shrink and the country may find itself sandwiched between the USA and India.

1.1.2 The Threat of Domestic Unrest The greatest threat to China’s revival is not containment from outside, but the possibility of such domestic unrest as broke out in the Soviet Union. High youth unemployment rate may trigger social unrest at anytime. As both economic growth rate and population growth rate decline, what that will do to the number of people looking for work is quite unpredictable. All the lip service that has been paid to encouraging entrepreneurship among young people and the creation of small and microenterprises has yet to translate into any institutional and policy

4

1 Introduction

support in administration, taxation, and financing. Despite the sharp drop in population growth rate, the shortfall in pension funding may dictate an increase in retirement age, which would take more jobs away from the young. In fact, youth employment will be one of the biggest social and economic problems in the next five to ten years. This is compounded by the tendency among many government departments to levy fees, impose fines, and engage in rent-seeking. This is particularly pronounced in institutions like chengguan (“city patrol”), which owe their very existence to the exploitation of entrepreneurs. All these factors might someday react with high youth unemployment rate and ignite some unrest, just as they have done in North Africa and the Middle East. Housing is also essential to social stability. In India and Latin America, among other parts of the world, the housing problem is solved in the form of slums. Farmers in Taiwan can sell their land and use the income to start a small company or buy an urban residence. What is the way out for China, where over 98% of the 250 million farmers do not own their housing in the cities they have migrated to for employment? The current property price is not only prohibitive for these migrant workers, but also beyond the means of the common urban wage earners. In the future, an additional rural population of several hundred million will move into the cities. If these lowincome people were to rent housing from those in the cities who own more than one apartment, they would have to pay 30–50% of their wages to a much smaller number of people who make a handsome profit from rental income. If so, urbanization would produce a polarized society. Can the state afford to build enough housing for so many people? Will China end up like Greece, if its government pays all for the people’s education, health care, housing, and elderly care? The income gap seems quite unlikely to narrow, given the current approach to this problem, coupled with interest and institutional impediments. In contrast to large companies, which are often on the receiving end of various forms of government largesse, many small companies will be reduced to bankruptcy by the government’s excessive interference and taxation. As a result, there will be high unemployment rates among the youth, and the middle-income population will be unlikely to increase—in fact, it might go the other way. Higher unemployment rates lead to more poverty, and large income gap will remain. For one thing, the traditional urban–rural gap will transfer into cities, with the poverty of farmers passed on to the next generation. Secondly, the land system has deprived farmers in the Chinese mainland of the capital for starting small and medium-sized companies or for buying real estate in cities, as the farmers in Taiwan and ROK can do. The land transaction fees and high property prices have prevented the vast majority of the migrant farmers working in cities and new college graduates from becoming home-owners; some urban/rural graduates have managed to do so [by taking out loans from banks], only to become “house slaves.” Many tenants have to hand in 50% or more of their monthly income to people who own more than one apartment, forming two distinct classes—the tenants living hand-to-mouth and the property owners who live off rents. However, the extensive supply of low-cost rental housing, plus the costs of elderly care, health care and education, would make China’s future financial situation grimmer than that of the USA and push it to the brink of bankruptcy. Thirdly, the current approach

1.1 The Thorny Road to Revival

5

to mitigating income gap, which still revolves around measures like raising pay or increasing tax exemptions, is no fundamental solution to the problem. Whose pay is supposed to be raised? If they were the state-paid members of administrative agencies or public institutions, or employees of state-owned enterprises, the income gap would only grow wider; if private small enterprises were made to increase the pay of their employees, more of them would go bankrupt, jacking up unemployment rate even further and exacerbating income inequality. On the other hand, to raise the amount exempted from personal income tax, would result in a higher Gini coefficient. Fourthly, proactive efforts to address the income gap may come up against institutional impediments. These efforts may cover the following aspects: the equalization of education, increase in educational investment, and the equalization of capability development; institutions and policies promoting upward mobility for members of the lower strata of society; actions to encourage entrepreneurship, increase the number of small companies, expand the middle-income population, create more jobs, and reduce unemployment-caused poverty. However, for institutional reasons, it remains unpredictable whether a favorable institutional environment for entrepreneurship, business and employment could become reality in five years. It has become crystal clear to everyone that reform is the only way out. However, the distribution of burdens and benefits can be difficult to change at the most fundamental level. First, can genuine reform be brought to the three types of expenditure using public money (toward overseas travel, receptions and automobile use), or a reduction in the number of institutions and personnel for which and whom companies have to bear excessive tax burdens? Second, will farmers be allowed to use their land as assets from which to derive economic benefits, the same way their counterparts in Taiwan province and ROK can? Will local governments be willing to relinquish claim on this source of income? Third, is it possible to reform the current local fiscal system, which has pushed property prices to exorbitant levels through land auctioning by the authorities and the one-time collection of land transfer fees for a 70-year term? Fourth, will the state start to levy real estate taxes, which would increase transparency about property ownership and mitigate income inequality? By the 2030s and 2040s, the state will be facing extremely high risks in its fiscal and financial systems. The population trend—a decrease in size and rapid aging in structure—may emerge in 2021, causing a decline in economic growth and plunging China into more serious recession than Japan. The debts from elderly care will grow bigger, resulting in high fiscal deficits, which, after 2020, may be accompanied by a slump in real estate price, asset devaluation, increase in bad debts, and greater risks for the banking system. By then, China will be facing much more serious debt problems than the USA is having to face today. In the early 1990s, Deng Xiaoping said that our systems would be settled in thirty years. In other words, by 2020, China will have evolved into a modern state with mature systems. However, regarding the structure of political governance, what kind of system will emerge with the advance of the reform? Will there remain a smooth handover of leadership? In these aspects may lie future risks.

6

1 Introduction

Therefore, in the twenty-first century, the revival of the Chinese nation and its fall into the ranks of failed state will be one step away from each other. Should there occur an internal upheavals, there would be defeat without a war.

1.2 China’s International Relations and Strategy: Retrospect and Prospect Since China forms a part of the world, its development and reform are bound to be closely related to and influence the rest of the world, and, in return, be affected by changes in the world’s economic, political, cultural, diplomatic, and military situations. Therefore, in view of China’s national interests and the global obligations it has taken on, we must make well-prepared plans before taking action; to be more specific, we should study the long-term, significant and across-the-board foreign relation issues bearing on China’s development, reform and opening up in the long run and come up with approaches, policies and tactics through discussion, thereby shaping China’s future international relations strategy.

1.2.1 The People Republic of China’s International Relations and Strategy Starting from the eighteenth century, despite the possession of the world’s largest population, China degenerated into one of the weak countries in the world family with its economic and military decline due to its fossilized systems, stagnant science and technology, and backward industry. It had hoped to resist foreign aggression by shutting its doors to the outside world, only to be forced to open them by foreign naval ships and cannons. For more than a century, it was frequently bullied and trampled upon by the imperial powers. In nearly three decades after the founding of the PRC, China adopted a general approach of self-imposed isolation to its political, economic, and diplomatic relations with other countries, with a strong Cold War and ideological overtone to its international strategic thinking and pattern. After the founding of the People’s Republic of China in 1949, during a meeting with an Indian delegation in late December 1953, Premier Zhou Enlai proposed the Five Principles of Peaceful Coexistence—mutual respect of sovereignty and territorial integrity, mutual non-aggression, non-interference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence. These principles were reiterated by the Chinese government’s representatives at the Bandung Conference in June 1954, and advocated in conjunction with the Indian and Burmese governments. However, after the liberation of China [by the Communist Party in 1949], there emerged two major ideological camps in the world. China’s foreign economic relations and diplomacy were disrupted by its participation in the Korean War, the

1.2 China’s International Relations and Strategy: Retrospect and Prospect

7

complex and sensitive relationship with Taiwan, imperialist powers’ economic and political blockades, the breakup with the Soviet Union, and the proliferation of ultraleftist thinking. Under such foreign and domestic circumstances, China at first drew an ideological line in its international relations and strategy, falling foul of the USA and European countries and forming an alliance with the Soviet Union. After breaking up with the Soviet Union, it forged close ties with small socialist countries like Albania and gave aid to developing countries in Asia, Africa, and Latin America. In the 1970s, it proposed the concept of “three worlds” and opposed the hegemony of the USA and the Soviet Union; meanwhile, however, it also improved bilateral relations with the USA, Japan, Canada, Australia, and some European countries, and resumed its status as a member of the United Nations. During the three decades after 1949, the Communist Party of China (CPC) did not transform from a revolutionary party into a ruling party and continued to govern the country with the concept of “continued revolution under proletariat dictatorship.” Instead of shifting its focus to economy, it pumped most of its resources into military and heavy industries. The frequent revolutionary campaigns, which culminated in the Cultural Revolution, wrought havoc on the national economy in addition to their traumatic effects on people. By the end of the 1970s, China ranked near the bottom among the world’s economies and, in science and technology, there was a five-decade gap between China and developing countries and a three-decade gap from Taiwan and ROK. Key features of China’s international relations and strategy in this period are as follows: maintaining an ideological opposition between socialism and capitalism; practicing economic self-reliance and self-sufficiency and self-imposed isolation from the world economy’s division of labor, and basing economic decisions on political considerations instead of costs and profits; rejecting foreign capital, technological, cultural and educational resources on the ground they embody ideas from “feudalism, capitalism or revisionism”; vying to become the leader of n the third world; suffering from chronic imbalance between military and civilian industries, and between light and heavy industries attributable to self-imposed economic isolation and a war-oriented mentality. Since the advent of the “reform and opening up” [in 1978], however, China has made significant modifications to its international relations strategy: First of all, regarding the world situation, Deng Xiaoping opined that a world war would be unlikely in many years to come and that peace and development would remain two overriding themes of the world, warning at the same time that a poor and backward country is bound to be bullied. Based on these beliefs, China set out to modify its economic and industrial structures in order to raise the people’s living standard, abandoning the military-oriented approach to economy, reducing the share of heavy industry in favor of light industry, and altering the regional economic patterns. Secondly, China has gradually ceased to draw an ideological line in its international relations and shifted toward a national interest-oriented philosophy of international relations and strategy. A case in point was its conflict with Vietnam, which, a socialist country as it is, kept laying territorial claims to China since the 1970s

8

1 Introduction

with an attempt at encroachment. Instead of sacrificing its national interests for ideological kinship, China waged a self-defense war against Vietnam in 1979. Also, in January 1979, China normalized its diplomatic relations with the capitalist country USA which intended to offset the threat from the socialist Soviet Union. Thirdly, China has established the strategic guideline of “maintaining a low profile but aiming to do something big.” The collapse of the Soviet Union was followed by significant changes in the world political situation. Some developing countries expected China to lead them in the rivalry against the USA and other developed countries. However, based on China’s national conditions and strength, plus the lessons learned from its previous behavior in international relations, Deng Xiaoping said, “[W]e absolutely cannot [be the leader of the Third World]—this is one of our basic state policies. We can’t afford to do it and besides, we aren’t strong enough. There is nothing to be gained by playing that role; we would only lose most of our initiative. China will always side with the Third World countries, but we shall never seek hegemony over them or serve as their leader.” “Nevertheless, we cannot simply do nothing in international affairs; we have to make our contribution,” he added, “In what respect? I think we should help promote the establishment of a new international political and economic order. We do not fear anyone, but we should not give offence to anyone either. We should act in accordance with the Five Principles of Peaceful Coexistence and never deviate from them.” Fourthly, China has pursued a policy of opening up and responded positively to economic globalization by integrating itself into the world economy and participating in international economic collaborations and division of labor. Eschewing the Latin American model of development through financial leverages and state-funded companies, which was supposed to “guarantee sovereignty,” China has developed a model that combines the introduction of foreign technology and management with that of foreign capital through wholly foreign-owned companies, joint ventures, and Sino-foreign cooperative businesses. Pursuing an export-oriented industrialization strategy, China has used its labor cost advantage to transfer and utilize a good deal of surplus labor, which has been turned from a weakness into a strength thanks to the rapid growth of processing for export. China has carried out a reform for the institution of floating exchange rates that are based on market supply, adjusted by reference to the basket of currencies, and effectively controlled. The RMB’s exchange rate, which is no longer pegged to the US dollar, has become more flexible. In the 13 years since its admission into the WTO in 2001, China has become a staunch supporter of multilateral trade, a defender of the free trade principle, and an advocate of the Doha Round talks. By 2010, China had fulfilled all its WTO commitments, in terms of tariffs, the service market, intellectual property, and law enforcement transparency. It has established a trade and economic system in compliance with WTO rules and become one of the world’s top open markets. Fifthly, China has reformed the planned economy and the monolithic system of state and collective ownership. It has also reformed some laws and institutions of government and public administration, which, in particular, have been tailored to internationally accepted rules of market economy since it joined the WTO.

1.2 China’s International Relations and Strategy: Retrospect and Prospect

9

In a nutshell, over the past three decades since the beginning of reform and opening up, we, under the guidance of the Five Principles of Peaceful Coexistence, have developed international relations and strategies featuring peaceful development through opening up to the outside world, focus on national interests with little regard to ideological camps, and the aspiration to “do something big” while keeping a low profile. We have narrowed our economic and technological gap from developed countries through the introduction of foreign capital and technology, significantly raised the people’s living standard, and gathered the strength for further development in both society and economy. These would have been impossible without the correct choices and decisions we have made with regard to international relations strategy and relations.

1.2.2 The Need for In-Depth Research on China’s Future International Relations Strategy Between 1949 and 1978, in a state of self-imposed isolation, China spent thirty years on “continued revolution under proletariat dictatorship.” That period was followed by thirty years of reform and opening up. “Thirty years” is a significant period in Chinese culture, since Chinese history was traditionally divided into sixty-year cycles. Now China is on the threshold of a new “thirty years”—a new stage of development and a new historical era. The 28 years between 2013 and 2040 will be a stage of development featuring faster urbanization, which is expected to be largely completed by 2040. The process will proceed more rapidly from 2013 to 2020, level off from 2021 to 2030, and slow down from 2031 to 2040. It is projected that 85–90% of the Chinese population will be living in cities and towns by 2040. China will achieve a general progress toward an advanced stage of industrialization. By 2030, the industrialization process will have been largely completed; between 2031 and 2040, China will enter the era of post-industrial society. In the next decade, the industrialization of east China will be largely completed. Between 2013 and 2020, the industrialization of central China will go from the initial/middle stage to the middle stage; it will come to the advanced stage and be completed between 2021 and 2030. The period between 2013 and 2020 will be crucial for the industrialization of west China, which will enter the middle stage between 2021 and 2030, come to the advanced stage during the decade beyond 2030, and be completed by 2040. From the perspective of China’s competition and development in the world, it is necessary to form an analytical train of thought on the following issues: demographic pros and cons—the supply and demand of resources and external balance—the consequent competitiveness in the international economic/technological/industrial arena—relevant international issues of trade and currency—the nation’s economic security—the road of development and national rejuvenation. In fact, this is also

10

1 Introduction

the analytical structure of this book and related to the following logic of analysis— national interests-actions—the costs and returns of gaming—options for international relations and strategy. What is China’s international relations strategy? In other words, what is China’s national strategy for dealing with the rest of the world? The five most important aspects: Firstly, it deals with long-term global and directional issues bearing on China’s national interests in its relations with the rest of the world. For instance, in the next three decades, shall we adopt a strategy of following, keeping up with or overtaking the countries with advanced science and technology? The answer would be a directional choice that bears on China’s national interests in the next decades, if not the next century. Different strategic choices will have different impact on the long-term interests of a nation and its future generations. For example, the size, quality, age structure, and gender ratio of a nation’s population are closely related to its competitiveness in the world. As a result, the population policy, despite its domestic nature, has much do to with long-term strategic choices and patterns that involve access to global resources, enhancement of global competitiveness in terms of knowledge and technological progress, international division of labor, and the costs and efficiency of trade competitions. Secondly, we have to study, discuss, and solve the major issues with crucial significance for the nation’s future in China’s relations with the rest of the world. For instance, oil and gas are scarce in China, which is bound to see a significant increase in its energy demand due to the rise in people’s living standard and wider ownership of family cars. This may translate into three strategic concerns: (1) the selection of an energy structure would affect the possession, sharing and import of energy around the world as well as the amount of energy obtained from the outside; (2) we have to consider external resources, the political stability of provenances, bilateral relations, and the channels for energy transportation; (3) the correct orientation of our choice has to be guaranteed through comparison and judgment in terms of investment risks, costs, and progress in energy technology. Thirdly, we need to consider the approach to and strategy of China’s future development in the context of the changing international conditions. As an open and modernizing country, China will inevitably have economic, political, and cultural relations with countries around the world. The selection of a future development strategy may sometimes hinge on the situation and changes in other countries rather than entirely depend on our will. This involves three aspects: (1) the level of stability and continuity in these countries’ policy toward China, as determined by their bilateral or multilateral relations with us, plus their political situation; (2) gaming and cooperation related to economic interests, as determined by mutual balance-of-payment relations in China’s foreign trade and investment, which involve multilateral relations and different countries’ resources, industrial structure, employment situation, international balance of payment, and fiscal and trade balance; (3) the impact of changes in these countries’ political and social situation on China’s political, economic, and cultural cooperation with them in the future. Therefore, it is an essential task in China’s international strategic studies to judge the political, social, and economic trends in some regions and major countries.

1.2 China’s International Relations and Strategy: Retrospect and Prospect

11

Fourthly, China’s international relations strategy is in fact also a long-term plan for China’s strategies for bilateral and multilateral international relations and its economic, political, military, diplomatic, and cultural cooperation with other countries. It is based on the premise that, in long-term development and competition, all countries devise their strategy and take actions according to their national interests. What we need to do is to consider other countries’ views and interests as well as their strategic plans and approaches and, accordingly, develop the methods, strategy, and tactics of our long-term actions. We not only have to consider China’s bilateral strategic games and cooperation with the USA, Russia, Japan, and India, among other countries, but also the strategy for games between one and many that result from overlapping bilateral games, plus games and cooperation between China and regional communities like the EU and the ASEAN. Fifthly, as an issue with broad repercussions, China’s international relations strategy is a comprehensive plan for coordinating major national undertakings in a wide range of areas, including economy, commerce, formal diplomacy, national defense, contact between political parties, finance and currency, the national image, culture, security, customs, frontier inspection, and so on. Without a long-term and comprehensive international relations strategy, the relevant government agencies would be lacking unified objectives, tasks, stages, and procedures to be followed while making their own strategy and work programs. Without a comprehensive international relations strategy for guiding and coordinating the actions of these agencies, each of them would find its own strategy and plan of action for exchange with the outside world to be in discord, if not conflict, with those of other agencies, which would make it impossible to achieve synergy. Sixthly, as a long-term plan for foreign relations, the international relations strategy requires phased plans with objectives and tasks for each stage. For instance, we have decided on a catch-up-and-surpass strategy regarding our competitiveness in science and technology. China now ranks 20+ among all the countries in the world. Supposing our goal is to be among the top five by 2040, we would need to make a phased strategic plan, which would involve the ranks to attain by 2020 and by 2030, and the objectives, principal tasks, and focal points at each stage, respectively. For another example, regarding the energy strategy, China has to consider structural modifications and the related efforts to reduce emissions. What changes are expected to have taken place in the energy structure by 2020, 2030, and 2040, respectively? What will be the share of new energy, to what degree will China reduce its reliance on foreign energy, and how many stages should the objectives and tasks be divided into? The answers to these questions will form the basis for China’s international relations strategy for energy-related technology, trade, international transport, and security. In a new stage of development, regarding its international relations and strategy, China will face both problems left unsolved from the past and fresh challenges in the new era.

12

1 Introduction

1.3 An Economic Analysis of China’s International Relations: A New Logical Framework Political science can provide effective means for analyzing political, military, and diplomatic relations between countries. However, more in-depth studies of these issues may require the approaches and methods of economics. The study and analysis of international relations call for a framework that involves the following sequence of factors: national interests and motives—state actions— costs and returns of state actions in an international context (non-cooperative games and cooperative games)—comparison in costs, returns, and risks—choices in international strategic relations. In international relations, political relations are determined by economic interests. Economic relations are fundamental to international political, diplomatic, and military relations. Relations between countries in terms of resources, investment, trade, finance, and territory determine, to a large extent, their political attitude toward each other—friendly or otherwise, and the likelihood of military competition or conflict. However, political, diplomatic, and military cooperation or conflict will in turn affect economic relationship, causing it to warm or sour. The economic, political, diplomatic, and military aspects of international relations are interactive and form an integral whole. On the one hand, close economic ties would form a structure of intertwined interests that could restrain fierce competition by force and prevent military conflict. On the other hand, the souring of political relations will have a negative impact on economic ties. For instance, some scholars believe that, regarding the relations between China and Japan, the latter may claim sovereignty to the Diaoyu Islands and ally with the USA, which is leading the encirclement of China, while strengthening its economic relationship with China for common development. In other words, Japan can gain economic benefit from China’s development despite its political and military opposition to China with US help, developing a relationship with China that is “cold” in politics but “hot” in economy. This is actually impossible; in fact, since the tension over the Diaoyu Islands in September 2012, boycott of Japanese goods in mainland China has seriously affected trade between the two countries, the scale of tourism, and the related investment and production. National interests are the starting point of all international relations. Because of this, national interest is a crucial concept in a wide range of disciplines—international politics, international relations, diplomacy, world economics, international trade, and international finance. Apart from economy, national interests also encompass political, cultural, diplomatic, and military aspects. External-related economic interests involve population, resources, environmental capacity for development, investment, trade, currency, and industrial division of labor and collaboration. Noneconomic interests comprise status in the international community, coordination in

1.3 An Economic Analysis of China’s International Relations …

13

political relations, cultural exchange, diplomatic cooperation based on tacit understanding, military collaboration, and disarmament. The term “non-economic interests” actually implies an economic perspective on outcomes from political, cultural, diplomatic, and military relations, as well as an economic analysis of non-economic issues. National interests can be short-term or long-term, local, or global. For instance, a rise or fall in the exchange rate of the national currency will bring either loss or gain to the state’s short-term interests in foreign exchange reserve. However, a structure of inexhaustible clean energy, which might result from technological progress, would be significant for a nation’s long-term interests. Aid to the development of other countries at the expense of certain local financial interests would be beneficial to a nation’s overall interests in politics, diplomacy, and economic collaboration. In a word, there is a need for balancing short-term and long-term national interests and a holistic consideration of the local and global aspects. Protecting national interests is the most fundamental motive of a state’s behavior toward the outside world. Generally speaking, the motives of a state’s actions depend on the national interests it pursues. Throughout the recorded history of humanity, all the actions by tribes, communities, ethnic groups and nations for territorial expansion and population increase, including the waging of wars, the seizing of people, the appropriation of resources, and forcible entry into markets, have been motivated by their interests of survival and development. The most fundamental motive for the making of a country’s foreign economic, political, cultural, diplomatic, and military policies is to protect and advance its national interests. In particular, when formulating foreign policy, China needs to properly handle the relationship between national interests and ideological similarity or difference. The situation where “common values shared by countries will lead to common interests”, as described by some politicians and scholars, is actually nonexistent. In fact, it is but a puerile folly to base the motive of state actions on socalled ideological commitments rather than national interests. For instance, despite the belief in communist ideals it shared with China, the Soviet Union refused to return to China territories that had been ceded to Tsarist Russia as a result of unequal treaties between the two countries. After the collapse of the Soviet Union, Russia abandoned the communist ideology to embrace Western democracy and capitalism. However, the “shared ideology” has not turned it into one of the democratic allies of the USA, which has never ceased to encircle and guard against it. For many years after the founding of the PRC, China’s practice of basing its international relations on common values and the consequent foreign policy have seriously harmed our national interests. All the state’s departments and personnel working for economic, political, cultural, diplomatic, and military exchanges with other countries, including security and intelligence, should base their highest code of conduct on the protection of the overall interests of the country and the nation. In all their actions, especially when making and carrying out crucial decisions, all these departments and their staff have to evaluate the prospective results by the criterion of national interests. Any decision or action that is worthless, if not inimical, to national interests must be cancelled or terminated.

14

1 Introduction

In particular, there is a need to prevent losses or even damages to national interests due to mutual interference and lack of coordination between departments involved in foreign affairs, whose functions may be ill-defined and whose duties may overlap. A scientific view on national interests: the principle of costs and returns in international relations. It would be ill-advised and unjustifiable to simply believe that any action towards the outside world, as long as it will be beneficial to a country, should be carried out. For any action or task, it is necessary not only to consider its national interests significance, but also to see whether the projected gains in national interests would be higher or lower than the costs. In other words, there is a need to establish a cost-effectiveness perspective on the state’s actions toward other countries, for the state has to pay a price for any of such actions, be it economic, political, cultural, diplomatic, or military. Generally speaking, when making a decision, both a government agency and the individual staff members involved need to evaluate the plan for action in terms of different levels of costs and returns. Sometimes, however, there is a need for the state to make a global evaluation of local decisions. For instance, holistic and balanced consideration is needed in a situation where, despite the economic costs, the political, cultural, diplomatic, and military gains in national interests would be immeasurable by economic standards. A mechanism of evaluation, budgeting, supervision, and accountability must be established for actions toward foreign countries that involve national interests. Such is the relationship between state and department, and between the public and the personal, that there is both common ground and difference between the state’s overall interests and the interests of every department and staff member. There is a law in economics: If you do something for yourself at your own expense, you will adopt the most economical way and do the best job; if you do something for yourself at public expense, you will do a good job but spend more than necessary; if you do something for the public at your own expense, you will neither spend as much as necessary nor do a good job; if something is done for the state at public expense in the absence of strict evaluation, budgeting and supervision, there will be serious wastage and enormous costs that far outweigh the gains. Considering uncertainties and risks in national interest-related decisionmaking and actions is also an essential part of the scientific outlook on national interests. Uncertainties and risks in process and result are an important category in the economic input–output analysis. Similarly, there exist a great deal of uncertainties and risks in international relations, including government and leadership changes, variations in laws and policies, other parties’ political and diplomatic canvassing of and influence on the country we are dealing with, and the manipulation of the state’s foreign policy by domestic political interest groups and social strata. The uncertainty in a state’s decision-making and actions involving international relations tends to determine the magnitude and nature of future gains or losses in its national interests and translate into various degrees of risk it has to bear. War is often caused by politicians’ electoral exigencies, the need to cater for populism or divert people’s attention from domestic tension, or the self-interest of arms dealers and the military. As a result, war-related decisions are irrational and determined by complicated internal factors rather than the desire to maximize

1.3 An Economic Analysis of China’s International Relations …

15

economic and other interests. This brings into international relations uncertainties and risks in the form of military conflicts and wars. Therefore, one cannot afford not to consider such uncertainties and risks when making decisions, taking actions, or devising emergency plans for the protection of national interests. Information symmetry for national interest-related decisions and actions in international relations. According to information economics, information symmetry can save costs and reduce losses caused by the lack of information or information asymmetry; besides, costs are incurred in efforts to search for, obtain, and sort out information. In international relations, the symmetry, accessibility, completeness, authenticity, and reliability of information are crucial for decision-making and actions pertaining to national interests, which are essentially forms of bilateral or multilateral negotiations and bargaining. Accurate information is fundamental to judgment, decision-making, and the taking of correct actions. A situation of information symmetry depends on the following: Firstly, a well-developed and effective intelligence service. From the broad perspective of national interests, apart from the specialized collection of military intelligence, the collection of diplomatic and security-related intelligence should not only cover information about international policies and political security, but also a wider range of fields including science and technology, industries, resources, trade, finance, sea transport, armament, and military deployments. In other words, the scope of interest should expand from intelligence in the narrow sense to that in the service of holistic national interests. Secondly, bilateral and multilateral information exchange between a country’s diplomatic, fiscal, financial, commercial, military, and meteorological departments and those of other states, especially mechanisms for routine bilateral and multilateral exchange between state leaders, is of vital importance for preventing misinformation, strategic miscalculation, and impulsive decision-making, which could lead to fierce non-cooperative games and, in particular, military conflicts between countries. Thirdly, the authenticity of information should be carefully and strictly verified. Some countries tend to spread deceptive information while making decisions or taking actions, as part of a bargaining process, in order to mislead other countries into strategic miscalculations about the situation, which will in turn lead to wrong decision and failure in action. Fourthly, excessive discretion in the supply of information to decision-makers must be prohibited. This is very important because, in the past, leaders were only given good news, which resulted in misjudgment over important diplomatic and international affairs, which in turn caused great losses. National economy of scale. As an important concept in economics, “economy of scale” also applies to countries in the global economy. The size of territory and population is one of the basic factors for a country, and national economy of scale is fundamental to its competitiveness in the international community. It comprises the following aspects: overall strength in terms of GDP resulting from the population size and the level of economic development; world market capacity formed by the population size and consuming power; the scale and quality of human resources as

16

1 Introduction

determined by the population size and educational levels, and on the basis of these, technological competitiveness. Major economies have advantages over small counterparts in terms of international competitiveness. For instance, a country with a population of five million may have a per capita GDP of USD 100,000, but its national GDP is merely USD 500 billion; in contrast, a country with a population of one billion may have a per capita GDP of only USD 5,000, but its national GDP is USD 5 trillion. Since the economic foundation determines a country’s political, cultural, diplomatic, and military status in the international community, a country with a large population has superiority over a country with a small population. A large country with a population of one billion can have a complete industrial structure, for the domestic market can accommodate the development of any particular industry. In contrast, for a small country with a population of five million, the domestic market may not have the capacity for the growth of a certain industry, which can only rely on the international market to expand to a large scale. Apart from industrial development and market, a country that is large in both population and territory enjoys significant advantage in innovation, entrepreneurship, reserves, the mobilization of resources, and the room for development. In fact, a country’s competitiveness is a function of a wide range of factors, including population size, territory, natural resources, and educational levels. Therefore, for any nation that desires to stay internationally competitive, it is of vital importance to maintain its share in the world population. Should a nation experience a steady decrease in such share (e.g. from 20 to 5%), it would apparently find itself in a long process of decline accompanied by a chronic deterioration in its economy and general well-being. Non-cooperative game: behavior and law of free competition in the international community. Survival of the fittest is the law of free market competition, which forms an essential part of economics. Only competition can prompt humanity to make progress in society, economy, science, and technology. From the perspective of free competition, international relations also follow the law of the jungle, with powerful countries preying upon weak ones in life-and-death bargains and negations and struggles that result in the survival of the fittest nations. Non-cooperative game in international relations is reflected in a situation of mutual exclusion where it is impossible for the participants to compete under binding agreements. Strategy for non-cooperative games between states is about how a state could maximize its interests through proper choices and decisions in a situation of mutually influencing interests. As one kind of non-cooperative game between states, zero-sum game refers to a situation where there is no possibility of cooperation between the parties to the game, so that one country’s gain must mean loss for another. The gains and losses among all the countries in the game will always add up to zero, so that the international

1.3 An Economic Analysis of China’s International Relations …

17

community as a whole receives no net gain. An example of zero-sum game is one state’s total occupation of another in both territory and population.1 However, generally speaking, non-cooperative games between states tend to result in negative-sum games in the modern times. For instance, Japan suffers serious losses as a result of the economic war triggered by the territorial disputes with China over the Diaoyu Islands. Non-cooperative game between states may lead to unconventional warfare. Under normal circumstances, such games between one state and another, if it involves intense conflict, may lead to a contest of military force. However, in the modern society, such games may also lead to unconventional warfare in such fields as currency, trade, biology, information, and economic sanction, with the purpose of destroying the opponent’s currency system, gaining enormous exchange rate profits, causing ecological and health disasters to the opponent, paralyzing its information networks, and impacting its import and export as well as resources supply and demand. The economic war caused by the Diaoyu Islands disputes between China and Japan is a good example of unconventional warfare. In modern times, four major economic factors are conducive to cooperative games between countries in the world: Firstly, rational evaluation of the costs and returns of non-cooperative games, and the contingent choice between non-cooperative and cooperative games; secondly, the conflict between each state’s interest demands and the finitude of global resources; thirdly, the conflict between the infinitude of the consumption of public domains by each state’s national interests and the finitude of public capacity; fourthly, world values: the balance between international collectivism and national individualism. A cooperative game in international relations, also known as a positive-sum game, refers to a game in which the states involved can reach a binding agreement regarding their behavior. Cooperative games between states essentially involve their compromise during the bargaining process. The distribution of cooperative surplus generated in the process of bilateral or multilateral cooperative games depends on the balance of power among the states involved and the employment of tactics. Therefore, compromise must be the result of cooperation based on a consensus reached through bargaining between the parties to the game. Here, the distribution of cooperative surplus is both a result and a condition of compromise. Cooperative games between states are based on the exchange of information, the binding force of agreements, and the degree to which they can be enforced. An important difference between cooperative and non-cooperative games between states is that the former emphasizes the exchange of information within a bilateral or multilateral alliance and the existence of binding and enforceable contracts. As a primary prerequisite and basic condition for cooperation, information exchange between states can prompt individual states with shared interests to forge a bilateral or multilateral alliance for common objectives. However, the alliance’s ability to 1 For

principles for the application of game theory’s analytical methods to international relations, see Zhang Weiying: Game Theory and Information Economics, Shanghai People’s Press, the 11th edition, 2004.

18

1 Introduction

gain net returns and their distribution within the alliance has to be guaranteed by an enforceable contract. The bilateral or multilateral free trade agreements between states, on the basis of which free trade zones have been formed, are examples of binding contracts and cooperative games that can increase the interests of all the participating states. However, in real-world bargains in international relations, agreements may be only partially enforceable, and contracts can only be arrived at by some countries. As a result, most real bargains between states involve contingent choices between cooperative and non-cooperative games.2 One of the major challenges to human society is the conflict between the aggregate interest demands of all the countries and the finitude of the world’s resources. However, this conflict is gradually being resolved thanks to technological advance and the self-control of population costs and returns since industrialization. In other words, the market mechanism in economic globalization can modulate the balance between population, technology, and resources. It is the areas of globalization in which the market mechanism does not work that are to be addressed by international cooperative relations and the new global political order. The survival-of-the-fittest principle of international competition should be offset by the respect for the right to life and efforts to address worldwide poverty and narrow the gaps between countries in wealth and the level of development. Should “survival of the fittest” be an international code of conduct, a series of problems would arise: Countries would be ready to resort to war as a solution to conflicts, causing enormous casualties among innocent civilians, and people’s right to life would not be respected and protected; the Matthew Effect would show in different countries’ levels of development, with some countries becoming more and more wealthy and others falling into a perpetual vicious cycle of poverty. In fact, in the international community there also exist contrast and tension between national individualism and international collectivism, and between market mechanism and public governance. Emphasis on the latter alone would deprive human society of competition and progress, whereas lopsided focus on the former would lead to cutthroat competition between countries and plunge them into disaster. Global common values, negotiation and dialogue, public administration and the new international political and economic order. Apart from the supreme interests of each state, those of humanity should also be considered. Common opinions, values, and objectives should be agreed upon in the following aspects: respecting and protecting people’s right to life and property; forestalling the development and use of weapons of mass destruction, preventing wars, and suppressing extremism and terrorism; maintaining ecological and biological diversity, and protecting the ecological environment of the earth; giving aid to developing countries, reducing the number of poverty-stricken people around the world, and narrowing the gap between rich and poor countries. 2 For

principles for the application of game theory’s analytical methods to international relations, see Xiong Yijie: Introduction to Modern Game Theory, National Defense Industry Press, 1st edition, 2010.

1.3 An Economic Analysis of China’s International Relations …

19

Dialogue and negotiation are required above all for translating these common goals of development into action. Mechanisms for dialogue and communication between countries should be established to avoid non-cooperative games with negative-sum or zero-sum results; countries should engage in collective negotiations to ensure ecological protection and prevent the “tragedy of the commons” in the global village; international conventions binding for all countries should be formulated through negotiation to form an international legal system; an international political and economic governance structure, which will comprise the United Nations, the International Criminal Court, peacekeeping forces, the World Bank, the International Monetary Fund, the World Trade Organization, and the international climate change conference, among other institutions, should be established, reformed and improved. In this book, as mentioned before, we have incorporated methods of economic analysis into discussions about international relations and strategy. It should be noted that this kind of analysis has an intrinsic chain of logic, as apparent from the discussions above, which serves as the blueprint for this book’s ideas, contents and structure. It is also worth noting that the economic concepts and theories used above are very complicated as far as economic research is concerned, involving a great deal of mathematical models and statistical verifications. In this book, however, these economic theories are simply used as tools for studying issues of international relations strategy, without much discussion about the tools per se. Therefore, we may say that this could be a new analytical approach and framework for the study of international relations and strategy.

Part I

China’s International Relations: Population, Resources and Environment

Population and territory are the most fundamental factors for a country, and there is a close relationship between the two, especially in terms of natural resources and room for survival. Regarding the balance between population and resources, there is the question of whether the latter (food, energy, iron ores, rare metals, freshwater, and forests) is abundant and secure; in the modern society, this may also generate the issues of industrial security, population quality, and the security of population size. By the end of 2011, China had a population of 1.347 billion, comprising nearly 20% of the world’s total. Since 1978, the per capita GDP has risen from USD 180 to USD 5414. The trend shows that, since the start of rapid economic growth thirty years ago, China has relied more and more for its development on the import of major resources like oil, iron, and steel from around the world and the global environmental capacity for emissions. If China wishes to complete the industrialization process, accelerate urbanization, make itself stronger and its 1 billion people richer, and build itself into a moderately developed modernized country in the next three or four decades, it will have to be more reliant on the redistribution of global resources and environmental capacity, in view of its population size, the limitation of its natural resources, and its demand for development. Development will remain the top national interest in the coming decades, yet some of the resources necessary for development will have to be imported from outside China. In particular, China has to coordinate with other countries regarding emissions into the environment. Therefore, the following issues are bound to be essential to China’s international relations strategy based on its development-related interests: China’s future population size, the amount of resources and capacity for emissions it will need, how to transform its mode of development and way of life, how to obtain resources from the outside, and how to deal with other countries regarding environment and consumption.

Chapter 2

Population Development and Resource Balance

In any country, population is the most active and dynamic factor in economic development, but its needs in production and daily life have to be balanced with the supply of resources. In particular, in a city whose population has attained a certain scale, the advance of urbanization and industrialization, which is accompanied by a steady growth in per capita GDP, would require continuous investment and development in industry, transport, energy, and urban infrastructure. Besides, the rise in people’s living standard also implies the consumption of more and more resources. What will China’s population status be like in the future? What variables will there be in its demand for resources? How should China devise a population strategy for the future from an international perspective? These issues are worth going deep into.

2.1 Defeat Without a War: The Decline in the Chinese Nation’s Scale and Quality In the long run, the Chinese nation may face a grave crisis—the rapid aging of the population structure, a dramatic decline in the population size, and the effect of genetically modified food on fertility and population quality. The Chinese nation, which has a history of several thousand years, stood firm against the Western powers’ armed aggression in history. However, the population disaster, should it occur, would probably weaken its strength or even disqualify it from the ranks of the world’s great powers. If so, China would suffer a defeat without a war in its competition and rivalry with the rest of the world, especially the USA and India.

© Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_2

23

24

2 Population Development and Resource Balance

2.1.1 The Family Planning Policy Has Put the Country in a Predicament The aging of China’s population structure may lead to a chronic decline in population size, which might in turn result in economic downturn in the long run. The decrease of young people will reduce economic vitality, increase the burden of support for the elderly, and lead to crippling debts, and might even cause a nationwide financial collapse.

2.1.1.1

Population Aging, Low Fertility Rates, Death of Only Child, and the Shrinking Population

Over the next four decades, China will be facing serious aging, a relative shortage of young people, and the existence of many families who have lost their only child. In the long run, if the family planning policy were to continue or if low birth rate becomes the norm, the Chinese population would be significantly less by 2100 than what it is today. By then, in terms of population size, China would be behind countries such as India, the USA, Indonesia, and Russia.

Significant Population Decline According to many forecasts, the Chinese population will decrease to between 700 and 900 million by 2100, when the world population will be around 10 billion. That is to say, China’s share in the world population will drop from the current level of 20% to 7–9%. Should the family planning policy continue to be strictly enforced, the percentage will continue to go down to around 5%.1 In 2010, the United Nations made a three-level projection of China’s future population, on the basis of a fertility rate higher than that discovered in China’s sixth census, which was conducted later2 : in the “medium” projection, the Chinese population will continue to grow till 2026 and then turn into negative growth, which will slow down after 2080; however, the population decline will continue till the end of this century, by which time the Chinese population will be about 941 million, marking a drop of 400 million from 1 Wang

Feng, Guo Zhigang & Mao Zhuoyan: “A Tentative Analysis of the Inertia of Negative Population Growth in the 21st Century”, in Population Studies, 2008 (6); Cai Yong: “The Future of the Chinese Population from the Perspective of the UN’s Population Projection”, part of the Study of the Relationship between the Will to Give Birth, the Act of Doing So, and the Fertility Level, a priority project at the Ministry of Education’s Key Humanities and Social Science Research Center; Guo Zhigang: “Rethinking China’s Population Situation”, in International Economic Review, 2012 (1). 2 In comparison with the results of China’s sixth census, the UN’s World Population Prospects 2010 overestimates the recent fertility rate and underestimates the trend of aging in China.

2.1 Defeat Without a War: The Decline …

25

the 2010 level. In the “low” projection, China’s population growth will continue for only six years, peak at 1.36 billion in 2017, and then decrease rapidly; after that, the negative growth will steadily accelerate, so that the Chinese population will have dropped to 510 million by 2100.3 According to the State of the World Population 2014 Report released by the United Nations Population Fund on October 20, 2010, the world population will be over 9 billion by 2050, when the number of countries with a population of more than 100 million will have increased to 17; India, with a population of 1.614 billion, will have replaced China as the world’s most populous country.

The world’s Most Seriously Aging Society The current situation suggests that aging has already been an established trend in China. The sixth national census showed that, by 2011, the number of people aged 60 or above had reached 178 million, accounting for 13.26% of the total population. China’s population aging is accelerating; the elderly population, which has a large base, is growing rapidly and showing an increasing trend toward advanced age and the “empty nest syndrome.” The number of dependent or semi-dependent elderly people in both urban and rural areas is around 33 million, accounting for 19% of the total elderly population.4 Aging will be an accelerating trend. Between 2001 and 2020, China will see an average increase of 5.96 million elderly people per year, with an annual growth rate of 3.28%—way higher than the average growth of 0.66% in total population. By 2020, the elderly population will have reached 248 million, marking an aging level of 17.17%. Between 2021 and 2050, when the second group of Chinese baby boomers since the founding of the PRC, who were born in the period from the 1960s to mid-1970s, will have become elderly people, the elderly population will start to grow at a higher speed, with an annual increase of 6.2 million. Meanwhile, with the gradual decline to zero increase and the onset of negative growth in total population, population aging will be further accelerated. By 2050, the elderly population will have exceeded 400 million and the aging level will have risen above 30%. In particular, the number of people aged 80 or above will be 94.48 million, accounting for 21.78% of the elderly population.5

3 The

United Nations: World Population Prospects 2010, revised edition. Office of the State Council: The Plan for the Development of the Social Old-age Service System (2010–2015); “China’s Population Aging Accelerates, Showing a Trend towards Advanced Age and Empty Nest Syndrome”, Chinanews.com, Dec. 27, 2011. 5 Office of the National Elderly Service Committee: “Report on the Projections of China’s Population Aging Trend”, China.com.cn, Feb. 24, 2006. 4 General

26

2 Population Development and Resource Balance

Low Fertility and the Trend Toward More Shidu Families The low fertility trend in China’s population structure means that the percentage of the youth will become increasingly low, which will lead to a decline of vitality in the whole population. Besides, the death of the only child due to various causes will form millions ofshidu (“loss of the only child”) families. The sixth census shows that the number of children aged 0–14 has dropped from 22.4 to 16.5%. In particular, in mega-cities like Beijing and Shanghai, the proportion of children aged under 14 is less than 10%.6 Based on the current data of deaths per 10,000 people, some scholars have estimated that, of the 218 million only children so far in China, 10 million may die before the age 25. This means that, in the near future, 10 million Chinese families will join the shidu group.7

Significant Changes in the country’s Ethnic Structure In particular, it is worth noting that the differentiated family planning policy for various ethnic groups is altering the country’s ethnic structure, with significant changes projected to take place in the long run. In 1980, 96% of the newborn babies belonged to the Han ethnic group and 4% belonged to other ethnic groups; in 2000, 52% of the newborn babies were Han, and 48% were from other ethnic groups; in 2010, the percentage of newborn babies belonging to the other ethnic groups was 52%, overtaking that of those in the Han group (48%). If the differentiated family planning policy remains unchanged, or is not changed in time, the ethnic structure of the Chinese nation will develop in the following way: from 1982 to 2082, the number of Han Chinese will decrease from 1 billion to between 60 and 120 million, whereas the size of the other ethnic groups may increase by 16 to 32 times as a result of the differentiated family planning policy. By 2100, the Han population may have decreased to between 50 and 100 million, whereas the other ethnic groups may have expanded to between 400 and 800 million. In other words, if the current family planning policy were enforced for 120 years, the Han Chinese would become an ethnic minority accounting for 12.5% of China’s total population. The Chinese population structure will develop like this: in the twenty-first century, the percentage of elderly people will be below 30%, and the percentage of young people will keep decreasing; there will be about 10 million families which have lost their only child; by the end of the century, the population will have dropped to 500 to 900 million, accounting for 5–9% of the world population; in terms of the ethnic structure, the percentage of Han Chinese will drop to 12.5%.

6 Jiang Yanxin: “Low Fertility Becomes More Obvious, with a Sharp Decrease in the Percentage of

Children Aged under 14”, Chinanews.com, Aug. 18, 2012. Yingnan: “There Will Be 10 Million Chinese Shidu Families”, Chinanews.com, Aug. 27, 2012.

7 Huang

2.1 Defeat Without a War: The Decline …

2.1.1.2

27

The Costs of Elderly Care and the Threat of Economic Collapse

In later chapters, we will analyze the dangerous social security burden on the USA. In fact, China is likely to face even more serious shortfalls in the funding of pension and elderly people’s health care, because of the institution of non-accrual pension that was practiced for nearly forty years since the founding of the PRC, plus the imbalance in the population structure due to the family planning policy. In 2011, there was a shortfall of 2.25 trillion yuan in social security funding, according to Zheng Bingwen, director of the World Social Security Research Center of the Chinese Academy of Social Sciences (CASS), who noted that there was about 2.5 trillion yuan in individual accounts of basic pension insurance for urban residents whereas the actually available funds only amounted to about 270.3 billion yuan, the “empty personal pension accounts” amounting to 2.25 trillion yuan. According to China Pension Report 2011 prepared by the CASS, since 1997, various levels of government had allocated altogether 1.2526 trillion yuan in subsidies to the pension insurance from their revenues. In other words, two thirds of the accumulated balance in basic pension insurance funds, which was 1.9497 trillion yuan by the end of 2010, came from “fiscal transfer payment.” Without fiscal subsidies, many provinces and cities would have been unable to make ends meet. The research by Cao Yuanzheng and Liao Shuming has led to the conclusion that China’s pension funding shortfall will be 18.3 trillion yuan by 2013. If the current pension system remains unchanged, the gap will widen from year to year afterward. Supposing the GDP grows by 6% per year, the pension fund shortfall will be 68.2 trillion yuan by 2033, accounting for 38.7% of the same year’s GDP. In a recent research, Gao Peiyong and Wang Dehua of the CASS have noted that, in the current social security framework, if every Chinese retiree can get his or her pension in 2020, the pension fund shortfall will keep increasing, even assuming a replacement rate (i.e., the percentage of collected pension in the average wage of the year) at 52.4%. A shortfall may emerge in pension funds for urban employees in as early as 2015. If the current policy were not modified in time, by 2050 the accumulated pension fund shortfall would have reached 95% of the year’s GDP.8 Should that be true by 2050, not considering the shortfall in healthcare insurance funds, the pension fund shortfall plus other factors of welfare payment imbalance might push up the fiscal deficit rate to 8% or so, and the debt rate to 150%. That would be even worse than the current situation in the USA and would surely affect fiscal sustainability. The government might issue debts to banks and then overdraw from the financial system, which would lead to serious inflation or the collapse of the financial system. This situation will be exacerbated by the loss of economic vitality and competitiveness in the international market due to the excessively high pension and healthcare cost in the total cost of products. The combined effect of all these factors might culminate in financial crisis or economic collapse at the international market. 8 Li

Tangning: “Umpteen Versions of the Pension Fund Shortfall”, Economic Information Daily, July 23, 2012.

28

2 Population Development and Resource Balance

2.1.2 The Threat of GM Food to the Sustainability and Quality of the Chinese Nation We can defend against and repel attacks with conventional weapons. Even nuclear strikes can be guarded against as much as possible and retaliated against in kind. However, in this era with advanced biotechnology, there is no way to evade intentional, unintentional or hidden biological threats, or biological warfare. Once consumed, the dangerous “high biotech” food will lie low and cause disasters to humanity after several generations, so that their effect will not be noticed by most of us before it is too late. After two or more generations, the affected nations will see a dramatic decline in their size and quality—a disaster dozens or even hundreds of times more terrible than the most ferocious nuclear strikes. In international bargains in the twenty-first century, unintentional biotech disasters or intentional biological warfare will bring the best results to a rival at the lowest cost. In contrast, the loser in the game will have been confused and enervated without a war; having realized its plight when it is too late, it will have to suffer in silence, with neither reason nor strength for revenge. We not only have to mind food security in view of the tension between population and arable land, but also pay high attention to long-term population security; i.e., whether the Chinese nation will decline in size and quality. However big a nation’s territory might be, it will never become a strong power without a commensurate population. This is the most far-reaching and vital international relations strategy for any nation and country. There has been incessant controversy over the safety of genetically modified farm produces ever since their birth. Pro-GM people say that much of the opposition to GM farm produces has come from some country’s protection of their traditional markets or competition by farmers, farmer associations or agricultural companies turning out products with traditional technology. Scientists who oppose GM farm produces, on their part, are conducting all sorts of experiment to prove GM food’s potential threat to humanity’s survival. Certain developments in China show that the threat of GM farm produces is already perceivable and, if it is ignored and not addressed with proper measures, may spell terrible disasters for the nation. Let us conclude this section with a projection by Yi Fuxian, an expert on China’ population growth. In the low projection, the Chinese population will peak at 1.288 billion in 2017 and then start a negative growth, dropping to 1.056 billion and 446 million by 2050 and 2100, respectively. In the medium projection, the Chinese population will peak at 1.337 billion in 2021 and then decrease to 1.142 billion and 596 million by 2050 and 2100, respectively. In the high projection, the Chinese population will peak at 1.391 billion in 2043 and then decrease to 1.384 billion and 1.350 billion by 2050 and 2100, respectively.9 However, it is unlikely for the population 9 Yi

Fuxian: Big Country with an Empty Nest, Hong Kong: Dafeng Press, 2007.

2.1 Defeat Without a War: The Decline …

29

to grow according to the high projection. If the harm of GM food becomes reality in several generations, there will be worrying prospects in both the size and quality of China’s future population. Besides, it is also quite likely for the population to decrease to 200–300 million by 2100.

2.2 Demand and Shortfall for Key Resources In this section, we will discuss the following issues: China’s economic growth, the rise in the people’s living standard, and the total demand for energy in the next three decades; the current energy supply structure, comprising the structure of various sources of energy and that of external input; analysis of the impact of changes and adjustments in costs, prices, consumption pattern, and energy structure for production on energy demands. Besides, we will discuss progress in new energy technology, future costs and prices, and their target proportion in the overall energy structure. That will form the basis for the discussion about China’s reliance on other countries for energy. From the perspective of international relations strategy, our discussion will focus on the following: firstly, the import of traditional sources of energy including oil and gas, their cost levels in the future, the security of trade channels, and the total cost of such security (including the cost for maintaining the security of shipping lanes and pipelines as well as military security); secondly, the technological, cost and security aspects of the exploitation of marine resources in China’s periphery, especially the situation in East China Sea and South China Sea; thirdly, the technological trend in developed countries and their transfer of technology, equipment and production regarding new energy, and our strategic response; fourthly, how to adjust our pricing and taxation mechanisms and change our way of life and mode of production in order to save energy and adapt to the new energy supply structure. A comprehensive analysis of these aspects may lead to an energy solution from the vantage point of international relations strategy.

2.2.1 Energy In 2005, China’s primary energy (PE) consumption was 1.659 billion TOE (tons of oil equivalent) while that of the USA was 2.351 billion TOE. Since 2010, however, China’s has overtaken the USA in PE consumption and become the world’s largest energy consumer. According to the Statistical Review of World Energy published by BP in June 2012, the global PE consumption in 2011 was 12.275 billion TOE, including 2.613 billion TOE from China, which marked an increase of 8.74% from the previous year and accounted for 21.28% of the world’s energy consumption; the US’s PE consumption was 2.269 billion TOE, marking a decrease of 0.0035% from

30

2 Population Development and Resource Balance

the previous year and representing 18.5% of the world’s energy consumption.10 In conclusion, China’s energy consumption is on the rise, whereas that of the USA has leveled off with a slight decline. In 2011, the combined energy consumption of China and the USA comprised 39.8% of the world’s total, far above the share of any other country. Ranking from the third to the tenth was Russia, India, Japan, Germany, Canada, ROK, Brazil, and France, which consumed 560, 460, 390, 250, 270, 210, 220, and 200 million TOE of energy, respectively. There is a vast difference between China’s energy consumption structure and that of the USA. China has a heavy reliance on raw coal. In terms of China’s energy consumption structure in 2011, crude oil, natural gas, raw coal, nuclear power, hydropower and recycled energy accounted for 17.7%, 4.5%, 70.4%, 0.7%, 6.0%, and 0.7%, respectively; in the USA, the same sources of energy accounted for 36.7%, 27.6%, 22.1%, 8.3%, 3.3%, and 2.0%, respectively. Ascertaining the total energy demand is fundamental to decision-making regarding the energy strategy. Projections of energy demand can be about the total quantity or separate categories. Based on a comprehensive analysis of China’s social and economic development targets in the next decade, Xu Mingchen, Cen Kuang, Li Jianwu, and Chen Qishen have made a systematic projection of China’s primary energy demand in the next decade in different scenarios, with a basic approach involving energy consumption intensity in various sectors.11 The reference scenario is set as follows: China’s population will increase to 1.445 billion to 2020 at the annual rate of 0.7%; the GDP will grow at an annual rate of 7.5% before 2015 and 6% between 2015 and 2020, to USD 18 trillion by 2020. In this scenario, China’s energy demand will reach 2.84 billion TOE and 3.49 billion TOE by 2015 and 2020, respectively—the equivalent of 4.057 billion tons and 4.986 billion tons of standard coal, marking an increase of 30.8 and 60.9% from 2009. The annual growth rate will be 4.6% between 2005 and 2010, and 4.2% between 2015 and 2020. In a word, in the next decade, China will see an unprecedented rate of growth in energy consumption. Two prestigious energy research institutions, the International Energy Agency (IEA) and the United States’ Energy Information Administration (EIA), have estimated China’s primary energy consumption in 2020 at 3.59 billion TOE and 3.65 billion TOE. According to BP’s energy prospects, in the forecast period of 20 years, due to the slowdown of GDP growth and the decrease of energy intensity, the growth in China’s annual energy demand is expected to drop to 3.0%, in contrast to 6.6%

10 All the 2011 energy consumption data are from BP’s “Primary Energy Consumption Structures around the World in 2011”, China5e.com. 11 Xu Mingchen, Cen Kuang, Li Jianwu & Chen Qishen: “Projections of China’s Energy Demand in the Next Decade Based on the Inverted U-shaped Pattern”, Resources and Industries, Oct. 2011.

2.2 Demand and Shortfall for Key Resources

31

between 1990 and 2010.12 Based on the total energy consumption in 2010, China’s total energy consumption will be 3.268 billion TOE, or the equivalent of 4.669 billion tons of standard coal, by 2020. There are many other forecasts of China’s future energy demand. According to them, China’s total energy consumption will be around 5 billion tons of standard coal by 2020. In energy consumption projections based on economic aggregate, consideration must be given to the energy-saving effects of technological progress and adjustments in the industrial structure. For instance, the IEA has forecast that China’s total energy consumption will grow by 2.09% between 2008 and 2035, whereas BP’s report says that it will grow by 3% in the next two decades. However, data show that it has grown at an annual rate of 3.96% between 1990 and 2010. It will take a long time to lower the growth rate of China’s energy demand to 2–3%. If the total population is taken as the basis for the forecast of total energy consumption, consideration must be given to the impact of such factors as urbanization and price on energy demand. In 2008, I issued a forecast of China’s energy demand on the assumption that its population will be 1.55 billion by 2040. However, China’s sixth national census shows that the fertility rate has dropped to 1.1; due to the changes in age structure and fertility rate, the Chinese population is mostly likely to be 1.35 billion by 2040. In the modified version of his forecast, in which there are three levels of per capita energy consumption—7 TOE, 6 TOE, and 5 TOE, China will have to consume 9.45 billion, 8.1 billion, and 6.75 billion TOE by 2040. Supposing the global energy consumption grows by 2% per year, the total energy consumption will be 21.75 billion TOE by 2040. That is to say, if China becomes a developed country, it may have to consume 31.03–43.45% of the world’s energy if there is no change in the quantity of global energy output and China’s pattern of development and consumption.13 In particular, if the energy structure remains unchanged, the rapidly spreading ownership and the development of family cars will increase the annual oil import from 250 million tons in 2011 to 700–800 million tons in 2040.14

2.2.2 Iron Ore As the cornerstone of the iron and steel industry, iron ores are an indispensable basic material in the industrialization of a country. The shortage and unstable pricing of iron ores have become a crucial challenge to the sound development of China’s iron 12 Zhou Yonggang: “BP’s Energy Forecast Announces Slowdown in the Next Two Decades”, zgnyb.com, Feb. 16, 2012. 13 Zhou Tianyong: The Chinese Dream and the Chinese Path, Social Sciences Academic Press (China), 2010. 14 The calculation is based on relevant contents in my The Chinese Dream and the Chinese Path (Social Sciences Academic Press, 2010) and the revised assumption that the Chinese population will be 1.35 billion by 2040.

32

2 Population Development and Resource Balance

and steel industry. Here we shall make a brief analysis of the future demand for iron ores and the shortfall in China. The per capita iron and steel output is an important measure of the industrialization process. It will grow slowly at the beginning of industrialization, pick up speed at the middle and advanced stages, reach a saturation point after the completion of the process, and gradually decrease thereafter. The experience of developed countries shows that the saturation point of iron and steel consumption will be met on three basic conditions: Firstly, the country has been industrialized (usually some time after that); secondly, the per capita GDP has reached USD 3,500–6,000; and thirdly there has been a radical change in the industrial structure, with the tertiary industry contributing to over 50% of the GDP and the new and high-tech industries reaching a certain level.15 Statistics shows that the per capita iron and steel output in industrialized countries are at least 500 kg when they have reached the peak of iron and steel consumption. In 2011, China attained a stage of development with a per capita GDP of USD 5,414 and a per capita crude steel consumption of 508 kg. Supposing that China will complete its industrialization process around 2020, yet considering the fact that urbanization will lag far behind and the enormous gap between different regions and between urban and rural areas, the per capita steel consumption will grow slightly more slowly in the next decade than in the first decade of this century; it will continue to grow at a low rate after 2020 and, between 2030 and 2040, steel consumption will reach the maximum saturation point. China’s per capita steel consumption grew at an average rate of 6.09% between 1990 and 1999, and 16.11% between 2000 and 2008. With the slowdown of industrialization and urbanization as well as the decline in the growth of the national economy, steel consumption will also decrease, with an annual growth rate of about 10% between 2010 and 2020, about 6% between 2021 and 2030, and about 3% between 2030 and 2040. The state’s 12th Five-year Plan for the Development of the Iron and Steel Industry has set the desirable amount of domestic crude steel consumption in 2015 at 750 million tons.16 Considering the change in the mode of economic growth, the decline in the potential economic growth rate, and the population size that is smaller than most of the previous projections, we shall estimate the demand for iron ores according to the projections given in this chapter. China will have attained the level of developed countries by 2040. By that time, according to my own dynamic high, medium, and low projections of per capita iron and steel consumption in The Chinese Dream and the Chinese Path, and considering changes in recent years in population growth, China will have to use 19–29% of the world’s ferrous metal reserves in 2004. If there is no progress in the prospecting of new mines—especially high-grade iron ores, and if there is no effective breakthrough 15 Cao

Xinyuan & Wang Wei: “The Economical and Intensive Use of Chinese Mineral Resources from the Perspective of Consumption Elasticity and Use Intensity” [J], Land and Resources Information, 2006 (5). 16 Raw Material and Industry Department: “Interpretation of the 12th Five-year Plan for the Iron and Steel Industry”, https://www.miit.gov.cn/, Dec. 7, 2011.

2.2 Demand and Shortfall for Key Resources

33

in the technology and cost of low-grade iron ores, China will not only have to use up the nationwide ferrous metal reserves in 2008, but also, as per the low, medium, and high projections, import from other countries 7.5 billion, 12 billion, or 15.9 billion tons of metallic iron between 2013 and 2040, i.e., 13.6 billion, 21.8 billion, or 28.9 billion tons of ores with an iron content of 55%, respectively.17 As forecast by Morgan Stanley, China will have to import 685 million to 854 million tons of iron ores between 2011 and 2015—way higher than my projections.

2.2.3 Land By land area and population size: Firstly, the Chinese mainland has a population density of 138 persons/km2 , ranking eleventh in the world. However, if measured by effective territorial area, it will have a population density of 364 persons/km2 , ranking third in the world after Bangladesh and India. Among these countries that are large in both territorial area and population size, China had a population density of 138 persons/km2 in 2008, ranking below ten-odd countries including Bangladesh (1,102), India (393), Japan (338), and the Philippines (298); the eastern part of China from Tengchong to Heihe, which comprises only 36% of its territory, is home to 95% of its population, with a population density of 364 persons/km2 . Secondly, China has 1.82 billion mu(1 mu= 1/15 ha.) of arable land. Considering the possible gap between the actual area and the statistics, we may assume that it actually has 2.42 billion mu. That would make China’s per capita share of arable land 55% of the world average, ranking sixth from the bottom, after Britain, Japan, Italy, Bangladesh, and Vietnam. In terms of the average share of arable land for each agricultural worker, the country that ranks at the bottom is Bangladesh (0.15 ha, or 1 mu); Vietnam ranks the second from the bottom, with 0.31 ha, or 4.65 mu. China ranks third from the bottom, with 0.36–0.49 ha, or 5.4– 7.35 mu. In India, each agricultural worker owns 0.73 ha of arable land, which is 1.5–2 times as much as the Chinese level. In the future, how much land will China need for its social and economic development, and how should it be distributed? These issues call for careful studies. Land is to be allocated for the following purposes: urban and rural construction for residence and work; transport; public irrigation and hydropower; the construction of development zones and large processing and resource-oriented companies (factories and mines); ecological protection and restoration; agriculture, animal husbandry, and forestation for raising the greening rate. Here we shall mainly analyze four kinds of land—land for urban construction, land for rural construction, land for transport, public irrigation and independent factories/mines, and arable land for agricultural production. 17 Zhou Tianyong: The Chinese Dream and the Chinese Road, Social Sciences Academic Press (China), 2010.

34

2 Population Development and Resource Balance

In the next 28 years (starting from 2013), China will need 100.60 million muof land for urban construction, i.e., an annual supply of nearly 3.6 million muof land. This is a forecast based on the projection that, by 2040, China will have a population of 1.35 billion and an urbanization rate of 90%, with 90 m2 of residence for each urban family, and a population density of 10,000 per km2 . In the next 28 years, China will need an additional 94 million muof land for railways, highways, airports, public irrigation, and independent factories and mines, assuming that harbors can be built through land reclamation from the sea, and considering that 30.32 million muof land can be rehabilitated from former independent factories and mines. This is a calculation based on the lengths of railways and highways per hundred km2 in developed countries. In view of China’s population density and the intensity of its economic activities, the per capita area of railways, highways, airports, and harbors will surely exceed the corresponding levels in developed countries. From now on until 2040, nearly 150 million muof land can be reclaimed from currently occupied rural land and used for farming or urban transport. Supposing that the government will follow a policy of buying some of the homestead land from rural people moving into towns and cities and real estate developers will displace some of the homesteads, these people will have sold most of their rural houses by 2040, and the villages across the country will have a total land area of 90 million mu, saving 150 million mu from the current area of 240 million mu. Part of this additional land can be reclaimed for farming, and the rest can be used for the construction of urban transport infrastructure. By 2040, considering population increase and the upgrading of the consumption structure, China will need 2.51 billion muof arable land for agriculture, which means a shortfall of nearly 610 million mueven if there is no decrease from the current level of 1.82 billion mu. By 2040, the Chinese population will be 1.35 billion. According to Liang Shumin and Sun Qingzhen, considering changes in the diet structure, the per capita food consumption will be 498 kg of grain and oil equivalent in urban areas and 482 kg in rural areas by 2040. If so, urban residents’ total grain and oil demand will be 650 million tons, which will have to come out of 2.16 billion mu of land, given the current output level; supposing that the demand for other crops grows by 38.2% along with that for grain and oil, 660 million mu of land will be needed for the cultivation of non-grain and oil crops, given the current output level. The total area needed for cultivation will add up to 2.821 billion mu. Given the current multicropping rate, there will be a shortfall of nearly 61 million mu in arable land for agriculture even if none of the currently available 1.82 billion mu of arable land is misappropriated. The situation of land demand and supply in the next 28 years until 2040 will be as follows: an additional 194.6 million muwill be needed for urban construction, transport, and public irrigation, which, plus a shortfall of 610 million mufor agriculture, translates into an overall gap of 804.6 million mubetween demand and supply. Considering that 150 million muof land can be reclaimed from

2.2 Demand and Shortfall for Key Resources

35

rural areas for urban and transport construction, the total shortfall in land for construction and agriculture will be 654.6 million mu.18

2.2.4 Freshwater Freshwater is mainly used for agricultural production and daily life in rural areas, daily life in urban areas, industry, and ecological protection. The quantities needed can be calculated and projected in the following aspects. Water for people’s daily life: by then, China will have an urbanization rate of 90%, with 1.215 billion people living in cities. The increase in water consumption will be due to two factors: firstly, urbanization and the change in residents’ way of life; secondly, the share of the tertiary industry in the industrial structure, which is expected to reach 65%. Thus, there will also be a substantial increase in the water to be used for urban service industries. The medium per capita water consumption in the cities of developed countries is 0.5 m3 per day, which means that the per capita water consumption per year is 182 m3 . By 2040, by the current average standard in developed countries, water consumption for daily life by the Chinese population (1.215 billion) will be 221.1 billion m3 . Water for industrial use: assuming an annual growth rate of 7%, the share of industry [referring to the secondary industry] in the industrial structure will be maintained at 25%, which is half of the current proportion. However, the total industrial added value will be 7.05 billion yuan, or 4.5 times as much as the 2009 level of 1.57 billion. If no water-saving technology is employed and assuming no change in the current consumption of 89 m3 of water for every 10,000 yuan of industrial added value, industry will have to consume a total of 627.45 billion m3 of water by then. Even if the water consumption per 10,000 yuan of industrial added value is reduced nearly by half, i.e., to 45 m3 , the quantity needed will be 317.25 billion m3 . The quantity of water for ecological uses, assuming that it still comprises 2% of the total water consumption, will be 23.6 billion m3 . By 2040, the total quantity of water for agricultural, industrial, daily life, and ecological uses in China will be 1,043.3 billion m3 , whereas the total water supply, based on the current data, will only be 800–900 billion m3 nationwide by 2030. In other words, we will be approaching the limit in the development and use of water resources.19 The total water supply of a nation is usually unchangeable. Even if we suppose that we can find an additional 10% of new water sources by 2040, thereby

18 The calculation is based on relevant contents in Zhou Tianyong’s The Chinese Dream and the Chinese Road (Social Sciences Academic Press, 2010) and the revised assumption that the Chinese population will be 1.35 billion by 2040. 19 This forecast was mentioned by Hu Siyi, Vice Minister of Water Resources at the annual meeting of China Hydraulic Engineering Society held in Hefei in 2006, as reported by Xinhua News Agency on Nov. 5, 2006.

36

2 Population Development and Resource Balance

raising the total water supply to 880–990 billion m3 , there will still be a shortfall from the demand for water at 153.3–163.3 billion m3 .20

2.3 China’s Future International Relations Strategy for Population and Resources In view of the domestic supply of resources and the territorial area, among other factors, China would be comfortable with a population of 500–700 million. However, China is but one of the countries in the world, which have formed close economic ties among them due to trade in resources and products, population mobility, and peopleto-people contacts. Besides, there exist competitions among them regarding the level of development, shares in the international market, the utilization of resources, national defense and military affairs. Therefore, the appropriate population size for a country and the balance between resource supply and demand should not only depend on the relationship between its population and its resources, but also on the history of its population and its economy as well as its relations with other countries in the world.

2.3.1 From Family Planning to Encouraging Birth Population size and quality are the most dynamic and also the most fundamental factors for a nation and a country’s survival, competition, and development in the world.

2.3.1.1

China’s Population-Related International Relations in the Future

What population size should China maintain in the future? In the short term, [a relatively small population] will surely have little impact on each of us; in fact, it may also help to ease the tension between population and resources/ecology. However, it will be highly inimical and detrimental to the Chinese nation’s future status in the world: Firstly, population encirclement of China in the future. It can be assumed that the Indian population will reach 1.7 billion, the US population will increase from 300 to 500 million, the Russian population will remain unchanged (or even with slight to medium-rate increase), the population of ROK and Japan to the northeast of 20 The

calculation is based on relevant contents in Zhou Tianyong’s The Chinese Dream and the Chinese Road (Social Sciences Academic Press, 2010) and the revised assumption that the Chinese population will be 1.35 billion by 2040.

2.3 China’s Future International Relations Strategy for Population and Resources

37

China will stay unchanged or increase slightly, and the population of Vietnam, the Philippines, and other countries to the south of China will grow rapidly. Eventually, China, with a seriously aging and steadily decreasing population, will be encircled by the neighboring countries, whose populations are becoming younger, and the USA on the other side of the Pacific. Secondly, in the twenty-first century, China may gradually cease to lose its claim to the title of the economic super star of the world. Russia attributed its own rise in the twentieth century to the country’s vast territory and expanding population, but nowadays it is no rival to the USA. Apart from other factors, the main causes included territorial reduction, decrease of population size following the collapse of the Soviet Union and, consequently, the lack of impetus for economic growth due to negative growth of population. China aspires to catch up with or even overtake the USA in GDP and see its RMB rise in the world as a rival to the US dollar after 2020. However, this dream might be shattered by its rapidly aging and decreasing population, which will lead to economic recession and a decrease in its share in world trade. Moreover, since China is facing a much more serious trend of population aging and decline than Japan and Russia, it might find itself in an even worse downturn than today’s Japan and Russia. Thirdly, under the strain of population aging, the single-child problems, crippling debts, and economic downturn, China will unlikely prevail in military conflicts in the future. Will there be no war in the future world, in which states will no longer resort to arms for resolving conflicts of interest and settling old feuds? No one can be sure of that. In reality, we are witnessing the proliferation of nuclear technology and military competition in the outer space. Countries are arming themselves with increasingly sophisticated weapons. India and Vietnam are significantly increasing their military expenditure. Japan is trying to become a “normal” state with the right to own and use armed forces and has become ready to convert its nuclear technology and materials into nuclear strike capability at any time. Regarding China’s relations with its neighboring countries, despite its significant compromises in postwar arrangements and the demarcation of borders, some of these countries, desiring more, have laid sovereignty claims to parts of the Chinese territory; besides, China still have old feuds to settle with some countries, which threaten to get worse. Once a war breaks out, can the country effectively respond to and win, despite the large share of the elderly in its population, a younger generation composed of only children, the economic downturn, and enormous debts due to fiscal burdens and old-age support? There will be a high probability of defeat. China has to shift from the national policy of family planning, which aims to curb population growth, to a pro-fertility strategy in order to cope with the future threat of a dramatic population decline. From either perspective—China’s international relations in the twenty-first century or the future of the Chinese nation, China should immediately give up the family planning policy and replace it with a population strategy that encourages people to have more children.

38

2.3.1.2

2 Population Development and Resource Balance

Tightening Control of Production and Sale of GM Crops

Neither complete approval nor disapproval of genetically modified organisms (GMO) is rational. In fact, the disagreements over GMO safety among different countries not only involve science and technology, but also, more importantly, political, economic and cultural considerations. The fact that countries have been vying with each other in biotech research in recent years reflects their true attitude toward GMO and the related technology. Thanks to the appeal of GM technology itself and the improvement in the GMO safety evaluation and risk prevention system, the wide application of GM technology in biological, medical, chemical, and agricultural fields will become an irresistible trend.21 As for GM farm produces with potentially higher threat to population quality and fertility, the issue has to be considered from the perspective of the relationship between food security and population security. Therefore, the only way to effectively curb their threat to the Chinese nation is to tighten the control of the research into, experiment with and production of GM farm produces in a scientific and rational way. In countries around the world with an early start on biotech development, it has become conventional to control the application of GM technology and the industrialization of GM farm produces by legal and other means. This is a fact to be taken seriously. Strategically speaking, when investing in the development of agricultural technology, we should actively follow the approach to increasing production with non-GM farm produces under the principle of zero technical risk while taking a cautious attitude toward GM technology for increasing agricultural output and, in particular, imposing a tight control over its industrialization, access to the market, and conversion into foods. In terms of research and development, more experiments should be conducted regarding GM farm produces. However, experimental consumption of GM foods by human groups must be strictly controlled. Foreign R&D agencies should be forbidden to conduct GM farm produce R&D experiments on Chinese rural land or among Chinese urban and rural people. Meanwhile, the government should invest more in the research into the negative effects of GM farm produces and fund sustained experiments aimed to find out the reasons why GM products can resist weeds, kill pests, impair the health of mice and suppress their fertility, and whether these capabilities are harmful to humanity. In terms of production, GM farm produces should be strictly limited to an experimental scale and forbidden to enter the market and the food industry. Their mass production should be prohibited before the risks involved have been clearly understood. The cultivation and dissemination of crop seeds must be strictly supervised, and the development and spread of GM seeds should be prohibited without a full understanding of the potential risks. Emergency measures are to be taken to restrict and reduce the production of GM crops; for GM products that are already being manufactured, emergency administrative actions should be taken to seal up the products and prevent them from entering the seed market and agricultural production. Original Chinese crop seeds should be immediately rescued through subsidization and other measures. Regarding 21 Wang Song & Xie Bide. Protecting China’s Biodiversity [M]. Beijing: China Environmental Science Press, 2001, 152–6.

2.3 China’s Future International Relations Strategy for Population and Resources

39

trade and sale at home and abroad, the import of edible GM farm produces should be prohibited, and GM farm produces should be required to be labeled as such when on sale. Any act to disguise GM farm produces as non-GM must be punished with the severest legal actions. Regarding consumer information, apart from the requirement that GM foods must be clearly labeled as such, the government will not interfere with discussions on whether GM farm produces are harmful, allowing full academic freedom to express any opinion on this issue. Besides, research results and experts’ opinions on this issue can be allowed to appear on newspapers, TV, and the Internet. Consumers can make their own decision on whether to buy GM or non-GM products. Our objective is to maintain the Chinese population at the level of 1.3 billion by 2100, when it would comprise no less than 15% of the world population, so that the Chinese nation will continue to multiply and prosper forever.

2.3.2 The External Resource Balance Strategy In view of its enormous population and limited reserves, China’s demand for crucial resources such as energy, iron and steel, freshwater, and land has to be met by imports from other countries. This is in addition not instead of pursuing technological progress in increasing energy and resource use efficiency, exploring alternative resources, changing the mode of development, and encouraging a more resource-light lifestyle. We shall not dwell upon resource security in China’s future development, which will be discussed in detail in Chapter 8.

2.3.2.1

Potential Consequences of the Shale Oil and Gas Revolution in the USA

The shale oil and gas revolution in the USA will alter the global pattern of energy supply and demand, with serious geopolitical implications. The US’s progress in the technology and equipment for shale gas exploitation has formed a large-scale shale gas industry whose output comprised a quarter of the total quantity of natural gas on the US market in 2011. That proportion may rise to around a half by 2030, as estimated by James A. Baker III from the Houston-based Rice University’s Institute for Public Policy. According to the IEA’s oil market report released on November 12, 2012, the USA will probably replace Saudi Arabia as the world’s largest oil producer by 2017. As the USA obtains more and more crude oil from underground shale with hydrofracturing method, the rising output will lead to a steady decline in oil import by the world’s largest economy, which will eventually realize its dream of self-reliance in oil. The IEA has also forecast that USA daily oil output will be 11.1 million barrels by 2020, exceeding that of Saudi Arabia by about 500,000 barrels. US oil import will keep decreasing. North America will become an oil export only

40

2 Population Development and Resource Balance

region by around 2030, and the USA will largely achieve self-reliance in energy by around 2035.22 In terms of the global pattern of energy supply and demand, the USA has had to import 20% of the energy it needs in recent years, when it has consumed 25% of the world’s oil consumption. If the USA can be energy self-sufficient, its dependency on energy from the Middle East will decrease significantly, which will have a host of economic consequences: Firstly, the oil and natural gas prices will decrease, which means a significant reduction in the cost of development for countries like China, which have to import huge quantities of oil for transport and as industrial raw materials. Secondly, the decrease in US demand for oil from the international market will have an enormous impact on a wide range of industries, including ocean shipping, tanker manufacturing, oil and gas harbors, the manufacturing of oil prospecting and production equipment, and oil refining. Thirdly, the IEA has forecast that the sharp increase in US oil output will accelerate the change in the orientation of international oil trade so that, by 2035, nearly 90% of the Middle East’s oil will be sold to Asia. Fourthly, many countries will follow the USA and invest in the prospecting and exploitation of shale gas. They will start by supporting shale gas developing companies with fiscal subsidies and tax incentives, and then gradually attain a stage of large-scale development and utilization, in order to reduce their reliance on energy import and enhance energy self-sufficiency. In terms of geopolitical patterns, the USA will rely less for energy on the Middle East, whose importance with regard to US national interests and political concerns will decline. The USA will be able to divert some of the political and diplomatic energy it invests in the Middle East and, in particular, withdraw more of the military forces it has deployed there. This will enable it to devote more of its political and diplomatic energy to the Asia–Pacific and, in particular, deploy 60% of its overseas military forces to that region, especially to the West Pacific and around China, completing the re-deployments as required by its global geopolitical strategy for the twenty-first century. If China comes to rely more on the Middle East for energy, it will have to take over from the USA the task of maintaining a political balance there and invest more of its political, diplomatic, and even military resources in that region. That will bring increasing geopolitical and military pressure on China. Therefore, although the shale gas revolution in the USA and its progress toward energy selfsufficiency may be somewhat beneficial to China economically, it will be more of a bane than a benefit for China from an international political and military perspective.

22 IEA:

World Energy Outlook 2012. See report at jrj.com.cn on Nov. 13, 2012.

2.3 China’s Future International Relations Strategy for Population and Resources

2.3.2.2

41

External Balance Strategy for the Land and Freshwater Shortfalls

The gap in land supply and demand cannot be bridged by international trade. However, the shortage in land supply can be overcome through the import of products of agriculture, animal husbandry, and forestry. For a major country with a severe shortage of land and freshwater, the import of appropriate amounts of agricultural, animal husbandry, and forestry products can save a significant quantity of freshwater for agriculture and reduce pollution caused by production and the use of fertilizers. This can also enable the country to increase the area of land for ecological protection and forestation. Moreover, if it accepts developed countries’ fiscal subsidies for agriculture, it will be able to spare some land for urban, industrial, transport, and water conservancy development, putting brakes on land and property prices. Therefore, on the one hand, it is after all a crucial strategic choice for addressing the domestic shortfalls in land and freshwater to lift some of the restrictions on the import of agricultural, animal husbandry, and forestry products while curbing the import of GM products. On the other hand, Chinese entrepreneurs should be encouraged to build and run farms abroad for the cultivation of farm produces, especially those that consume a lot of water, and then ship them back to China to meet the domestic shortage in food production. The most serious shortfall in future land supply in China will be the shortage of land for the production of farm produces. In my opinion, using import to meet part of the shortage in farm produce supply might be something that will happen regardless of man’s will. If the Chinese residents’ food consumption structure is upgraded and, in particular, if the proportion of meat goes higher, a great deal more of agricultural products will have to be consumed, resulting in a significant increase in the demand for land. Meanwhile, if the domestic output per mu cannot be raised by 50%, the shortage will have to be met by import. In fact, in the past two years, China has already imported oil crops and other agricultural products from 580 million mu of sown area to meet the shortfall in crop production due to the relative insufficiency of land. In my opinion, if there is still no progress in the improvement of saline and alkali soils, tidal flats, and deserts, China may have to import a quantity of agricultural products from at least 500 million mu of arable land and over 700 million mu of sown area in order to fill the domestic gap in agricultural product supply. Regarding the use of freshwater, apart from seawater desalination, drip irrigation, and the modification of the industrial and daily life uses of water resources, a crucial measure for external balance will be the South-West Water Diversion Lines project. Enormous quantities of freshwater flow from the Nu River, the Lancang River and the Yarlung Tsangpo River in the southwest and the Eerqisi River in the northwest into the Indian Ocean and the Arctic Ocean. In the lower reaches of these rivers are South Asia, Kazakhstan, and Russia, none of which has a shortage of water. Therefore, China may step up negotiations with these countries for proper allocation of the water resources in those international rivers, diverting some of them to the northwest of China. Apart from filling the gap in freshwater for future development,

42

2 Population Development and Resource Balance

the South-West Water Diversion Lines project will be structurally conducive to flood control for the aforementioned countries; it will also help to control desertification, check ecological deterioration and improve the ecological environment in northwest China, increase the area of arable land and the population in the region, expand the Chinese nation’s room for survival, and balance the geographic distribution of the Chinese population.

Chapter 3

Global Warming and China’s Development

From an economic perspective, emission and environmental protection are characterized by pronounced externalities. From the “tragedy of the commons” (as described by Garrett Hardin) can be deducted a predicament in world environmental issues: If the global environment is a public place, in which each country wants to emit more out of self-interest, the whole world will become a “high-carbon greenhouse” that is disagreeable for humanity’s habitation, living, and development. To address issues like this, which cannot be resolved through regulation by the international market, all countries (like the herder families in Hardin’s model) must form a public environmental improvement organization for the making of binding rules on their behavior through multilateral negotiations in order to ameliorate and protect humanity’s common home. However, due to their differences in size and stage of development, among other aspects, the following questions regarding international emissions and climate change have become essential parts of today’s international relations—how to balance the developing countries’ need to develop and developed countries’ need to protect the environment, how to reconcile high-consumption and high-emission countries with low-consumption and low-emission ones, and how to handle the relationship between major countries on land and small countries on the sea. China has its own national interests to consider. However, it calls for careful studies from the perspective of international relations and strategy to avoid the increase of negative externality during China’s development and properly handle the relationship between its national interests and worldwide environmental interests.

3.1 China in International Climate Talks Global warming has hitherto been the biggest “externality” issue: Whereas the gains (economic growth) from CO2 emission go to the emitting country, the cost (climate warming) has to be shared by the whole world, in an instance of “market dysfunction” © Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_3

43

44

3 Global Warming and China’s Development

that leads to excessive CO2 emission. An economic solution would be intervention by the government, which can use taxation and other measures to raise the cost of emission up to the level of the gains for the emitting entities in order to reduce emission. However, in the absence of a world government with coercive power, the issue can only be resolved through negotiations among all the countries. The Chinese economy, which is in a critical period amid the industrialization and urbanization process, is developing rapidly. However, the concomitant increase in the emission of greenhouse gases has placed China at the very frontline of international debates over climate change. The Stern Review has forecast that, before 2030, the greenhouse gases emitted by China alone will comprise more than one third of the total increase of emission.1 One has to concede that there is no getting away from at least part of that accusation. Despite their disagreements over each countries’ responsibility for and approach to reducing emission, the developed countries in Europe and North the USA have reached a consensus in international climate talks on requiring China to assume its responsibility for emissions reduction. Some developing countries have also made the same request to China, which finds itself in the face of growing international pressure.

3.1.1 The Position of the BASIC and that of the Group of 77 The UN Framework Convention on Climate Change has two central principles: common but differentiated responsibilities; the promotion of sustainable development in all countries, especially developing ones. According to these principles, an appropriate increase in greenhouse gases emission by developing countries for their development is inevitable and justifiable. The responsibilities for emissions reduction are to be shared by developed and developing countries in a differentiated manner. Developing countries need to cooperate extensively with developed countries in technology transfer and funding for the purpose of reducing emission. Generally speaking, the group of developing countries holds that the developed countries should bear both historical and current responsibility for global climate change and take the lead in emission-reducing actions. Besides, they are unwilling to take on the obligation to reduce or restrict the emission of greenhouse gases under the current circumstances for fear that it might impede their economic development. They want financial and technical assistance from developed countries, expecting the latter to help them reduce emissions and enhance their capability of adapting to global warming. However, this group is so large that internal disagreements are unavoidable. For developing countries yet to be completely industrialized, even if their per capita emission is allowed to grow to a negotiable extent during the process of per capita emission convergence, it will still fall short of the necessary level for industrialization. As a result, their room for development will be substantially limited, and that would be unfair. However, in the long run, the global population will have 1 Stern

Review: The Economics of Climate Change, 2006.

3.1 China in International Climate Talks

45

reached 9 billion by 2050, with nearly 8 billion in developing countries. Therefore, global warming can never be resolved unless developing countries also take action. The BASIC countries (China, India, Brazil and South Africa), as newly industrialized nations, have seen significant increase in their carbon emission due to their large population and rapid economic growth in recent years. Developed countries want them to undertake obligations for compulsory reduction of greenhouse gas emissions, whereas these four, which are concerned about constraints on development from emissions reduction commitments, have demanded a continuation of the request for developed countries to take the lead in emissions reduction while allowing developing countries to give priority to development as per the Kyoto Protocol and refused to make binding commitments to absolute reduction. All the BASIC countries have used relative reduction as the main measure against climate change: China has promised a decrease of 40–45% in carbon emission intensity from 2005 to 2020; India, 20–25%; and Brazil, 36–38% down from a scenario of “emission as usual.” There is a high degree of consensus between China and India in adherence to per capita emission and the history-based accounting of carbon emission. During the negotiations before the Climate Change Conference in Copenhagen, the Group-77 and China had always maintained unity and accord over major issues, largely ensuring that the Convention reflects the interests of developing countries regarding a number of fundamental issues. However, with the growing impact of global climate change and the deepening of climate talks, the tension and disagreements among developing countries will also increase, altering the negotiation pattern and affecting the results. Coastal countries and small island countries (e.g., Maldives on the Indian Ocean, Tuvalu on the South Pacific, and Kiribati in the Central Pacific), as well as countries vulnerable to extreme weather (such as Indonesia), tend to be in favor of international climate talks. They agree with the EU on many issues, demanding strict measures for global climate protection. The oil-exporting countries are concerned that reduction in greenhouse gas emissions might decrease their oil export and affect their economy. As a result, they keep a close watch on the developed countries’ policies and measures in response to climate change and spare no effort to urge the latter to compensate for their economic losses. The Latin American countries, which hope to profit from their strengths in forest and other resources amid the enforcement of the Convention, agree with the USA on many issues. Generally speaking, all developing countries want developed countries to undertake obligations for emissions reduction as well as financial and technical assistance to developing countries. Some developing countries also request that the emerging countries, notably China, to take on emissions reduction obligations.

3.1.2 China’s Position in International Climate Talks In the 1990s, when negotiations over the Convention started, China was playing a relatively insignificant role in the international community. With a modest carbon emission, its main concern was how to develop the economy. In 1997, when the

46

3 Global Warming and China’s Development

Kyoto Protocol was being drafted, China increased investments to combat the Asian financial crisis. However, its carbon emission remained low, accounting for 12.8% of the world’s total.2 No developed country required China to undertake quantified emissions reduction, nor did China become a major player in climate talks. However, between 1997 and 2007, the rapid development of China led to a sharp increase in its share of the world’s carbon emission, which became higher than that of any other country. In 2007, China made its voice heard amid the talks held at Bali Island, Indonesia, marking the beginning of China’s challenge to the climate conference, which had been dominated by Europe and the USA. China has always regarded itself as a developed country, and its development indicators also clearly show it really is. Adhering to the principle of “common but differentiated responsibilities,” China holds that the Bali Road Map, which involves greater support to developing countries in funding, technology transfer and capacity building, is fundamental to any response to climate change. There are three reasons for this: Firstly, the developed countries should bear the greatest responsibility for the existing greenhouse gases, which have mainly been accumulated from the emissions by these countries in the past two centuries. Secondly, since China is still developing, a great part of its emissions is for survival and therefore unavoidable; besides, it is still far behind developed countries in terms of per capita emission. Thirdly, a significant part of the emissions currently chalked up to China is due to the manufacturing of goods to be exported to developed countries by multinational corporations, which is actually an instance of the transfer of emissions from developed countries to China. For these reasons, by 2020, the developed countries should reduce their emissions by at least 40% from the 1990 level and spend 1% of their GDP on assisting developing countries in emissions reduction. Table 3.1 is a list of China’s evolving opinions on the reduction of greenhouse gas emissions, which reflects China’s current position in international climate talks: persistent emphasis on the allocation of carbon emission permits on the basis of “per capita carbon emission”; demand for developed countries to take the lead in reducing greenhouse gas emissions; demand for developed countries to give financial and technical assistance to developing countries; support for flexible mechanisms for compliance with the Convention, such as carbon emission trading; support for other forms of international climate cooperation. In recent years, China has also started to consider commitments to quantified emissions reduction. Though China has committed itself to the objective of reducing energy consumption per unit of GDP, it has no way to directly control the speed of the rise in total carbon emission. Meanwhile, it is facing mounting pressure for absolute reduction of greenhouse gas emissions from some countries and international organizations. Faced with the pressure for emissions reduction from developed countries and even 2 “Greenhouse

gas emissions around the World”, China Climate Change Information Network (ccchina.gov.cn).

3.1 China in International Climate Talks

47

Table 3.1 Chronology of China’s key positions on the reduction of greenhouse gas emissions 1

Emphasis on per capita carbon emission as the basis

Proposed in 1991, this has remained one of China’s principles in negotiations

2

Demand for developed countries to take the lead in emissions reduction

Proposed in 1999, this has remained one of China’s principles in negotiations

3

Demand for developed countries to give financial and technical assistance to developing countries

Proposed in 1991 and modified in 2005; regarding technology, the emphasis has been shifted to mutually beneficial technical cooperation between developed and developing countries as well as the creation of a technology dissemination mechanism that accommodates both the workings of the market and the global climate situation; regarding funds, the emphasis has been shifted to exploration of new ways to enlarge the scale of financing

4

Support for flexible mechanisms for compliance with the Convention

Approval of “carbon emission trading” and other flexible mechanisms as of 2001

5

Support for international actions for climate cooperation apart from the Convention

Support as of 2001

6

Commitment to quantified emissions reduction

In 2007, China agreed to take slowdown actions by “measurable, reportable and verifiable” means. In 2011, it expressed the willingness to accept obligations for quantified emissions reduction as of 2020 under specific and explicit conditions

Source Compiled by the author on the basis of relevant information

some of the developing ones, China has to take care to maintain a dynamic balance. More importantly, it has to change its ideas and approaches, and take the initiative in transforming difficulty and pressure into new opportunities for development. In fact, how to achieve a dynamic balance between economic growth and emissions reduction is an unavoidable challenge for all countries. If China can overcome this challenge in the near future, it will have found the key to future success and attained new heights.

3.2 China’s Strategy and Tactics In recent years, China has been facing increasing pressure for emissions reduction and energy-related restrictions from both inside and outside. Regarding external pressure, developed countries in the West have put incessant pressure on China and other developing countries, emphasizing the need to share the obligation for reducing the total emission of greenhouse gases and threatening to impose “carbon tariffs.”

48

3 Global Warming and China’s Development

Some developing countries that are affected by global warming have also come to see China as a new environment destroyer. In terms of internal pressure, China’s economic growth in recent years has, to a considerable extent, been achieved through high energy input. The tension between the sharp increase in energy demand and the shortage in resources has formed an energy constraint that has become a bottleneck against the sustainable development of the Chinese economy. Therefore, it is now a pressing task for China to change the mode of economic development, save energy, and reduce emission. While coping with external pressure and changing the mode of economic growth, China will propose its own emissions reduction program and undertake certain obligations for emissions reduction; meanwhile, it will seize the opportunity for development amid the progress of low-carbon economy, and gain advantage in technology and production. In this way, it will be able to regain the initiative and obtain the right to speak on the issue of global warming.

3.2.1 Proactively Reducing Emissions and Establishing a Low-Carbon Development Model Can China avoid a repetition of the development mode of Western countries and embark on a stable, low-carbon and sustainable course of development? This is one of the crucial questions in the world’s response to climate change. Despite its relatively low level of development, China’s incomparable population size has changed the whole situation. In the past few years, China has achieved rapid economic growth and great success in every aspect. However, the resource and environmental price has been enormous, and the tension between economy and environment has intensified. The need for energy security, environmental protection and sustainable development demands a rapid and extensive transformation. Even without climate change, lowcarbon development would be an inevitable and imperative task. If quicker steps are not taken to modify structures and alter the growth model, the tensions and burdens will exceed China’s resource, environmental and social capacity, rendering it unable to sustain the economy. China has no other options regarding this issue; the only way to achieve sound and rapid economic growth is to persist in economical, clean and safe development. This internal demand is in accord with the international call for emissions reduction. In fact, using external pressure to force itself to change the growth model and take energy conservation and emissions reduction as a basic national policy will be a wise decision that is conducive to both China’s sustainable development and a slowdown of global warming. As for the emissions reduction measures, they may involve the following: First of all, there is a need to advocate a low-carbon way of life and promote institutional development for this purpose. The public should be informed of the government’s determination to work with the whole society to achieve low or zero emission, form a low-carbon philosophy for daily life, and stop wasting food. Energysaving architecture should be adopted for fundamental improvement in the energy

3.2 China’s Strategy and Tactics

49

efficiency of existing houses and buildings. This can be achieved through the installation of thermally insulated walls/roofs/floors, solar photovoltaic roofs, solar battery coatings, energy-efficient windows, and energy-saving LED lights. Energy supply should come from local renewable sources, geothermal heating should be adopted more widely, outdated windows should be replaced, and heat-recycling ventilation systems should be installed. Buildings may be powered with geothermal energy and solar energy and equipped with thermal insulation materials. Green ways of travel may be encouraged and more efficient transport models may be adopted. Full use should be made of buses, bicycles, trams and trains, more goods should be transported by railway or by sea, and short-distance air transport should be replaced by highspeed railway transport. Air traffic control should be improved to reduce congestion, make air routes and landing methods more reasonable, and reduce the demand for aviation fuel. Efforts should be made to save water and energy, disseminate new technology for this, and enforce relevant laws and policies. Apart from publicity, these measures will have to be supported by policies and institutions. Secondly, a well-designed system for the protection of resources and environment should be established. China must not repeat the development process of Western countries, which is too energy-consuming. Instead, it should shift to low-carbon development, a more climate-friendly model. One of the approaches to marketization is to levy resource and environment taxes so as to internalize the cost of emission, and raise funds in order to encourage the development of clean energy. The carbon tax, levied on the basis of carbon emission, is aimed at reducing such emission from the burning of fossil fuels such as oil, coal and natural gas. It is a policy response to climate change and the need for energy conservation and emissions reduction. Take Finland, for example, which is the first country to impose a carbon tax. In 1990, when Finland introduced the carbon tax, the rate was only 1.2 euro/ton of CO2 . Since then, however, the rate and the taxation method have frequently changed. Since the tax raises costs for industrial companies, Finland has also adopted generous tax reduction, exemption and return measures in order to maintain the international competitiveness of its products and services. The country collects nearly 3 billion euros in carbon tax per year, which comprises 9% of its total tax revenue. The income from the carbon tax has been spent on global scientific research, information collection and release, personnel training, the development of clean energy technology, and forestation. The carbon tax has some negative impact on Finland’s industrial competitiveness, but this has not been significant mainly because part of it is offset by the incentives for innovation in environmental technology. Thirdly, there is a need to draw upon advanced emissions reduction practices. Apart from the carbon tax, there is carbon emission trading, a market mechanism that enables companies with high emissions reduction costs to buy “emission permits” from companies with low emissions reduction costs, in order to achieve low-cost emissions reduction for the whole economy and promote the development of lowcarbon technology and new energy industries. This has not been earnestly practiced in the Chinese mainland yet, and little transaction has been seen in the environment exchange offices in Beijing and Tianjin, among other cities, due to the lack of buyers. However, in Taiwan, which has also refused to undertake obligations for compulsory

50

3 Global Warming and China’s Development

reduction of total emission, carbon emission transaction is working smoothly. To encourage companies to engage in such transaction of their own accord, the Taiwan administration subsidizes them for investment in assets and equipment, and reduces or exempts them from the energy tax or carbon tax. The most important incentive has been this: the companies that have voluntarily reduced emission will be awarded with a carbon emission quota in proportion to their carbon emissions reduction under the future framework of “overall emission control and transaction.” Thanks to such incentives, there is a very high percentage of participation in voluntary emissions reduction among the industries in Taiwan. For instance, the percentage is 100% in the iron and steel industry, the petrochemical industry, and the cement industry. Fourthly, the land’s capacity for carbon fixation should be increased. Research has shown that a 1% increase in forest coverage on the earth can absorb and fix 60–710 million tons of carbon from the atmosphere and release oxygen simultaneously. It is a low-cost, proactive and effective emissions reduction method to capture greenhouse gases in the atmosphere and store them in biological carbon reservoirs through adjustments in land use and afforestation measures. China has promised to make vigorous afforestation efforts and intensify ecological development and protection by meeting a series of objectives, including the addition of 24 million hectares of improved grassland and the remedying of 52 million hectares of degenerated, desertified or alkalized grassland. These efforts are expected to result in effective absorption of enormous quantities of CO2 and turn China into a country with the world’s largest indirect reduction in greenhouse gas emissions. The realization of these goals requires China to reform the current mode of forest management, clearly define property rights and usufruct, and stimulate the initiative for afforestation and ecological protection. Fifthly, carbon emission should be lowered through the optimization of the industrial structure and the transformation of traditional industries. China now consumes seven times more energy than the USA and 10 times more than Japan per unit of GDP. That means there is ample room for emissions reduction through industrial restructuring and technical innovation. The secondary industry, which has the highest carbon emission intensity, emits more than five times as much carbon as the primary industry per unit of GDP and more than twice as much as the tertiary industry. Currently, the secondary industry has an excessively large share in the economic structure. To encourage the development of the tertiary industry will significantly reduce carbon emission while the same GDP level is maintained. Besides, most of China’s CO2 emission comes from industries with high energy consumption. It has been estimated by the Chinese Academy of Sciences that there is still vast room for improvement in China’s main high energy consumption industries in comparison with the world’s advanced level, and that carbon emission can be reduced through technical transformation and elimination of obsolete production capacities.

3.2 China’s Strategy and Tactics

51

3.2.2 Promoting Technological Innovation and Seizing a Favorable Position in Low-Carbon Economy Low-carbon economy, which is of great significance for China, is both a challenge and an opportunity. Competition in this respect is mainly reflected in international rivalry for domination in carbon emission transaction and contest in low-carbon technology. In particular, the latter will directly shape the pattern and direction of future international negotiations and bargains over climate change. In the next decades, reducing greenhouse gas emissions will become a crucial and global issue. The development and application of advanced technology will be the ultimate solution to climate change. A worldwide technological revolution has gradually unfolded in the central industrial clusters of low-carbon economy. China needs technology for saving energy and reducing emission not only to meet the current demands, but also to avoid losing the technological initiative in the new round of industrial revolution, as has been the case in the past decades. Because of modern economy’s reliance on carbon-based energy, carbon emission is an inevitable result of economic activities. A country’s carbon emission can be calculated with the following formula: Final carbon emission = population × energy consumption per unit of GDP × energy carbon emission intensity To reduce carbon emission, “energy consumption per unit of GDP” and “energy carbon emission intensity” must be reduced to a greater extent than the growth in per capita GDP. This has to be achieved through progress in low-carbon technology, i.e., technology for the realization of low-carbon economy, which mainly comprises clean energy technology, energy-saving technology, and carbon emissions reduction technology. It can be divided into three categories: Firstly, carbon reduction technology, i.e. energy-saving and emission-reducing technology for high energy consumption and high emission fields, the clean and efficient use of coal, and technology for the prospecting and development of oil and gas resources and coalbed methane. Secondly, zero carbon technology, e.g. nuclear energy, solar energy, wind power, and renewable energy such as bioenergy. Thirdly, decarbonizing technology, a typical example being the capture and storage of CO2 . It can be said that low-carbon technology involves all the pillar industries of the national economy. In a certain sense, whoever masters core low-carbon technology will have seized business opportunities and the initiative. According to an IEA research, as much as 83% of the greenhouse gases generated by human activities come from the processes of energy production and consumption. Therefore, energy is the crux of low-carbon economy and top priority should be given to reducing greenhouse gas emissions in energy production and consumption. Human history shows that each technology revolution could create enormous

52

3 Global Warming and China’s Development

economic wealth, the wise use of which can translate into political and military advantage and become a direct cause of changes in the international political situation. Since the advent of the information age, Europe and the USA have been seeking the economic growth points to be generated by the next revolution in science and technology. Based on the prediction that traditional energy will be depleted, they have all chosen new energy technology as if by prior agreement, regarding it as a key area in the new technological revolution. In recent years, countries around the world have increased their investment in the development of low-carbon technology. All the major developed countries are devoting themselves to the development and application of new and clean energy technology in the hope of seizing commanding heights in the progress of low-carbon economy. For China, climate challenges are closely related to energy issues. Since the burning of fossil fuel is the primary source of greenhouse gas emissions, the reduction of such emission will to a large extent depend on how to increase the use of new energy in the energy structure. For China, which is at the crossroads for the transformation in the mode of development, optimizing the energy structure is the only way to put an end to the environmental deterioration that accompanies economic growth. In fact, it has become imperative for China to shift to a course of low-carbon sustainable development. However, China’s foundation for the development of low carbon technology still lags behind the world’s advanced level by seven to ten years. Besides, it is facing more complicated and daunting challenges in this respect. As shown from Table 3.2, the largest number of applications for key low-carbon technology patents has been filed in developed countries like Japan, the USA, and Germany, whereas the number of such applications is still relatively low in developing countries and emerging economies. Though China has the largest number of applications among developing countries, that number is insignificant in comparison with major developed countries, equivalent to only 3% of Japan’s number and 6% of that in the USA. China’s low-carbon patent applications are mainly concentrated on solar photovoltaic technology, the utilization of solar thermal energy, and wind energy technology, with few patents for biofuel, CCS and IGCC. Most of such applications come from universities and research institutes; those that come from Chinese enterprises are fewer and more scattered. According to UNDP’s “China Human Development Report 2010: Towards a Low-carbon Economy and Sustainable Society,” China needs the support of at least 60-odd key technologies for the realization of its low-carbon development objectives, but it has yet to master 42 of them.3 A key perspective for China, however, is not to consider the challenges of climate change in isolation and with a negative attitude, but to see the potential economic opportunities and institutional profits. Saving energy and reducing emission are both a constraint and a motive power. It is foreseeable that the development of and competition in low-carbon industries will become a major arena for a new round of technological and industrial contest among countries around the world. As an economic 3 Zhou

Wuqi & Nieming: “A Study of the Patent Strategy of Chinese Low-carbon Technology Innovation Enterprises”, Journal of Intelligence, 2011 (6).

75

29

80

Spain

China (mainland)

96

The Netherlands

Switzerland

87

Italy

51

212

Britain

160

242

France

Taiwan

802

Canada

931

1301

USA

South Korea

3941

Japan

Germany

Solar photovoltaic

Country/region

13

42

35

11

39

51

53

47

88

13

450

172

142

Solar thermal energy

20

90

16

9

49

56

41

87

84

32

649

320

196

Wind energy

6

1

7

2

11

9

8

9

10

1

44

50

32

Geothermal energy

14

25

39

14

59

22

75

174

104

26

259

387

199

Water/ocean energy

Table 3.2 Distribution of key low-carbon technology patents by country/region between 1988 and 2007

11

6

12

4

22

13

27

27

45

11

133

135

112

Biofuel

4

3

5

0

20

15

9

31

69

10

83

218

110

Carbon capture and storage (CCS)

1

0

5

0

2

3

1

11

4

0

27

56

37

(continued)

Integrated gasification combined cycle (IGCC)

3.2 China’s Strategy and Tactics 53

19

Israel

1639

38

8

43

18

Solar thermal energy

2232

9

18

11

34

Wind energy

285

14

3

1

7

Geothermal energy

1902

16

10

22

35

Water/ocean energy

731

3

25

7

6

Biofuel

670

2

4

3

1

Carbon capture and storage (CCS)

190

3

7

3

7

Integrated gasification combined cycle (IGCC)

Source of data Ren Xiaoling. “The Distribution and Licensing of Clean Energy Technology Patents around the World: European Patent Office Releases Report on the ‘Patent and Clean Energy’ Survey”, Chinese Inventions and Patents, 2011 (1)

8972

11

Finland

World total

23

41

Australia

Solar photovoltaic

Sweden

Country/region

Table 3.2 (continued)

54 3 Global Warming and China’s Development

3.2 China’s Strategy and Tactics

55

giant and the world’s largest energy producer and consumer, China must participate in this round of competition. Technological innovation centering on alternative energy and energy-saving technology is now regarded as the Fourth Industrial Revolution. China can take this opportunity to vigorously develop alternative energy (e.g., nuclear power, wind power, photovoltaic energy, smart grid, and smart battery) and energy-saving technology. It should lose no time in expanding the domestic new energy market, rely less on developed countries, provide its new energy industries with room for development, and help Chinese enterprises to seize vantage points in the Fourth Industrial Revolution. With the support of the government and the hard work of enterprises, China’s central industrial clusters for low-carbon economy can be expected to attain a golden age of rapid and sustainable development led by a number of outstanding enterprises that are about to emerge.

3.2.3 Seeking a Leading Role in Addressing International Climate Change Issues As the Kyoto Protocol’s first commitment period drew to a close, the 18th conference of the parties to the UN Framework Convention on Climate Change was held in Doha, the capital of Qatar, between November 26 and December 7, 2012. During the Doha conference, legally binding arrangements were made regarding future obligations for reduction in greenhouse gas emissions. The room for CO2 emission that will not cause hazardous climate change has already been occupied by developed countries, leaving precious little space for developing ones. With the constant emergence of the adverse effects of climate change, the importance of the tension between emissions reduction and development is giving way to the urgency of climate problems. It is foreseeable that international negotiations and bargains over greenhouse gas emissions will become more and more fierce, which may serve as a fundamental impetus for the establishment of a global “profound” rectification mechanism with real binding force. As a developing country with huge carbon emission, China plays a significant role in international climate talks in terms of its attitude toward emissions reduction. With this power comes a greater responsibility for global climate change, an issue that bears on the destiny of humanity. In international talks, China should fully represent the interests of developing countries and try to win more benefits and room for development on behalf of them. It should also help other developing countries to enhance their capability of adapting to global warming and, while seeking room for its own development, increase its influence on international climate change issues.

56

3 Global Warming and China’s Development

3.3 Discussion on China’s Environmental Strategy for the Twenty-First Century China’s current per capita CO2 emission is 6.8 tons, higher than the global average of 5.3 tons.4 According to Xi Jinping’s report to the 18th National Congress of the CPC, China will finish the process of building a moderately prosperous society in all aspects by 2020, when it will become one of the medium-to-high income countries or high-income countries, with a per capita GDP above USD 10,000. The negotiations that started in Doha toward the end of 2012 will conclude with an agreement before 2015, which will be implemented as of 2020. As the world’s largest carbon-emitting country and one of the permanent members of the UN Security Council, China would surely become a common target of criticism if it still refused to undertake obligations for quantified emissions reduction on the ground that it is a developing country, to the detriment of the international environment for China’s sustainable development. According to Xi’s report, China will “adhere to the principles of common but differentiated responsibilities, equity and respective capabilities, and make a proactive response to global climate change in collaboration with the international community.” A more proactive climate strategy for China can be considered from the following perspectives.

3.3.1 Starting Carbon Emission Transaction to Lower the Cost of Emissions Reduction International experience has shown that carbon emission transaction is the least costly approach to emissions reduction. However, it takes a long time to cultivate the mechanisms that are necessary for this market, such as quota distribution and emission inspection. China has so far taken administrative steps only, imposing emissions reduction targets on all provinces and demanding the closure or transformation of high emission companies, without using any market means. China does not have to undertake any obligation for absolute reduction until 2020. However, it is already a daunting task to fulfill its promise to reduce its CO2 emission per unit of GDP by 40–45%. Moreover, the country will probably have to take on obligations for absolute reduction after 2020. According to the current rules of international climate talks, China’s future share of emissions reduction will be based on the amount of its emission in 1995 or 2005, and starting to reduce emission ahead of the schedule does not mean that China will have to bear more obligations. In fact, an early start of compulsory emissions reduction can promote the application of energy-saving and environment-friendly technology, thereby reducing the future pressure on China. The country may try 4 Zuo

Xiaolei: “Encouraging the Private Sector to Play a Leading Role in Steady Growth”, China Security News, June 4, 2012.

3.3 Discussion on China’s Environmental Strategy …

57

imposing total emission control on particular high-emission industries, such as coal power, iron and steel, and non-ferrous metals, or controlling emission from new production capacities. Emission quotas can be auctioned or allocated to enterprises, whereas emission demands beyond the quota can be purchased on the market and quotas for energy-saving and emission-reducing programs or new energy programs can be sold on the market. Emission control can prompt enterprises to adopt new energy-saving technology and, more importantly, generate buyers in carbon emission transactions so that this market can genuinely work in China and gradually grow into an open market geared to international standards, thus stimulating the development of China’s low-carbon economy. In terms of international relations, the launch of compulsory emissions reduction in key industries will be a response to the demand for China to do so from the USA, Europe, Japan, and other developed countries. It will be conducive to Chinese enterprises’ participation in the international carbon emission transaction market. Besides, it can provide funds and impetus for the domestic development of clean energy, reduce the relevant industries’ reliance on the markets of developed countries, promote the adjustment of the industrial structure, and accumulate experience for CO2 emissions reduction in all aspects in the future.

3.3.2 Taking the Initiative to Lead Climate Cooperation Among Developing Countries In view of the “externality” of global warming, consultation and negotiation are the only way to solve the problem. As a vast developing country and the world’s second largest economy, China has a bigger population and emits more CO2 than any other country, and is also rather vulnerable to the adverse effects of global warming. China has an obligation for checking global warming, which is why it should be more proactive in assuming responsibilities for coordination and leadership. On the one hand, on behalf of developing countries’ interests, China should request developed countries to provide developing ones with substantive technological and financial assistance. On the other hand, since China enjoys certain superiority in new energy technology and energy-saving and environmental protection industries, it can support actions in response to climate change taken by developing countries, especially the least developed countries and those vulnerable to the adverse effects, within the south–south cooperation framework, and promote international cooperation in technological research and development, technology transfer, public education, and information sharing. With concrete actions, China can provide environmentally vulnerable developing countries with technological and financial assistance so as to win more trust from them, gain greater international latitude, and increase its right to speak on international affairs.

58

3 Global Warming and China’s Development

3.3.3 Improving Coordination with the Other BASIC Countries Serious tension is inherent between developed countries and developing ones over a number of issues, such as who should reduce emission first, how much should be reduced and how to achieve it, and how to provide funds and climate-friendly technology to developing countries in order to help them adapt to global warming. In particular, due to their rapid growth and the concomitant sharp increase in CO2 emission, the BASIC has become a principal target of developed countries’ demand for undertaking obligations for absolute emissions reduction. However, the BASIC has a considerable right to speak thanks to their population and economic aggregate. With coordinated actions, they will be able to play a more significant role in addressing climate change issues. Because of the common interests shared by the BASIC countries—China, India, Brazil, and South Africa, they should unite and negotiate with developed countries on the same position, requesting the 38 developed countries to renew their legally binding emissions reduction commitments in the second commitment period of the Kyoto Protocol, provide technology to developing countries, and give them financial aid through the Green Climate Fund in order to help them adapt to climate change. They should prevent developed countries from taking unilateral actions regarding climate issues. For instance, if the carbon tariff proposed by the USA is imposed, developing countries will suffer because they tend to use more carbon-consuming technologies. Furthermore, once the USA starts to levy the carbon tariff, EU, Japan, and other developed countries will follow suit, causing a tremendous impact on all developing countries, including China.

3.3.4 Projecting the Image of a Great Power Rising “in a Green Way” China has made great efforts in coping with climate change, saving energy, and reducing emission, but these have been practically unknown to the international community. The country should incorporate its domestic policy into its international commitments and give adequate publicity to its achievements in response to climate change as well as its energy-saving and emission-reducing efforts and their effects, in order to project the image of a responsible great power, dissipate misunderstandings among the public in developed countries, and let the world understand its sincerity and devotion. China can also offer to host the UN’s climate change conferences, at which international agreements bearing names of Chinese cities can be reached, and host international energy saving and emissions reduction expos in order to advertise its emissions reduction efforts.

Part II

Boosting China’s External Competitiveness

China’s global competitiveness in the 21st century will hinge on two factors: the level of science and technology and the level of industrial development, which is determined in turn by technological advances, human capital, and the quality of management. In 2010, technological improvements contributed 45% toward economic growth in China, compared with 65–75% in developed countries. On the global competitiveness rankings published by the Global Economic Forum and by IMD Switzerland, China ranked 26th and 23rd, respectively. Obviously, to catch up and to surpass others, much more innovation is needed to facilitate technological advancements and to increase industrial competitiveness. Moreover, against the backdrop of changes in the global economy, especially the overall trade dynamics, and “reindustrialization” in Europe and North America, it is incumbent on the Chinese to make necessary adjustments to our own development strategies and industrial structure.

Chapter 4

China’s Technological Competitiveness: Status and Gap

In 2011–2012, among the world’s 142 countries and regions, China ranked 26th in overall competitiveness and 53rd in technological competitiveness. Among the G20, China ranked the second in economic aggregate, the 12th in science and technology, and the 10th in the intensity of R&D input. Among the G20 excluding the USA, China ranked the 10th in the number of US patents, accounting for 2.38% of US patents owned by countries other than the USA. In 2006–2010, among the world’s top 500 companies, only four of the Chinese companies among the top ten applied for US patents, which amounted to a number of 72, whereas eight of the South Korean companies among the world’s top 500 possess 58,382 US patents—810 times the number for Chinese companies’.

4.1 China’s World Status in Technological Competitiveness Each year, the Switzerland-based World Economic Forum (WEF) releases a Global Competitiveness Report (GCR), making a comprehensive and authoritative evaluation of the strengths and weaknesses of about one hundred economies. Now the GCR has been widely used by the government, the academia, and company leaderships. The WEF has defined “competitiveness” as the institutional, policies and factors that determine a country’s productivity, the level of which in turn determines an economy’s sustainable economic prosperity. In other words, a more competitive economy can bring higher income to the country’s citizens. Productivity also determines an economy’s rate of return on investment (materials, human resources, and technology), which is the most fundamental driving force of the rapid growth of an economy. Therefore, the higher a country’s international competitiveness is, the more likely it is to achieve rapid growth in the medium or long term.

© Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_4

61

62

4 China’s Technological Competitiveness: Status and Gap

4.1.1 The International Status of Competitiveness The Global Competitiveness Report 2011–2012 is based on open-source data and a questionnaire survey of managers. In 2012, the WEF surveyed about 10,000 business leaders in 142 countries and regions. The questionnaire, which involves a wide range of factors concerning economic and business development as well as important aspects of economy, has been the most comprehensive in its coverage of economies. The global competitiveness evaluation mainly involves 12 “pillars”—institutions, infrastructure, macro-economic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation. These can be divided into three categories: basic requirements subindex, efficiency enhancers sub-index, and innovation and sophistication factors subindex. Institutions, infrastructure, macro-economy, health and basic education belong to the first category; higher education and training, the efficiency of the commodity market, the efficiency of the labor market, the completeness of the financial market, technological preparation, and market size belong to the second; business environment and technological innovation belong to the third. The 139 economies around the world are at three different stages of development—the factor-driven stage, the efficiency-driven stage, and the innovation-driven stage, which are demarcated on the basis of per capita GDP. The weights for the sub-indexes differ from one stage of development to another.1 All the hard indexes (open-source data) and survey results have been converted into graded indicator values (1–7 points). According to the WEF’s report, China is now at the second, i.e., the efficiencydriven stage. Among the 142 countries and regions that were evaluated, China ranked the 26th in global competitiveness in 2011–2012, which marked one place up from the previous year, consolidating its status among the top thirty. The top ten countries were Switzerland, Singapore, Sweden, Finland, the USA, Germany, The Netherlands, Denmark, Japan, and the UK. For China’s specific scores on various indicators, Fig. 4.1 shows China’s strength in market size, health and basic education, and macro-economy, and its weakness in technological preparation and technological innovation. It has been revealed by a great deal of research that technological competitiveness plays a central and decisive role in a nation’s global competitiveness (Altenburg et al. 2008; Archibugi and Coco 2005; Freeman 1995). Based on the practice of Altenburg (2008) and others, we have taken the fifth (higher education and training), the ninth (technological readiness), and the twelfth (innovation) pillars in the WEF’s evaluation system as the criteria for the evaluation of a nation’s global technological 1 The

demarcation of the stages is based on per capita GDP (USD). Stage 1: factor-driven, < 2000; transition from Stage 1 to Stage 2, 2000–3000; Stage 2: efficiency-driven, 3000–9000; Transition from Stage 2 to Stage 3, 9000–17,000; Stage 3: innovation-driven, > 17,000. The weights for the sub-indexes differ from stage to stage. More specifically, the weights for the basic requirements sub-index, the efficiency enhancers sub-index, and the innovation and sophistication factors subindex at the factor-driven stage, the efficiency-driven stage and the innovation-driven stage are: 60%, 35%, 5%; 40%, 50%, 10%; and 20%, 50, 30%, respectively.

4.1 China’s World Status in Technological Competitiveness

63

Institutions Innovation

Infrastructure

Business sophistication

Macro-economic environment Health and basic education

Market size

Higher education and training

Technological readiness Financial market development

Labor market efficiency

Goods market efficiency

Source of data: WEF’s GCR 2011-2012 Fig. 4.1 China’s scores in the global competitiveness index (2011–2012). Source of data WEF’s GCR 2011–2012

competitiveness. Table 4.1 shows China’s scores and its international ranking in these dimensions. Table 4.1 shows that China ranks the 57th in terms of innovation, the highest among all the three pillars. More specifically, it ranks the 43rd in terms of university– industry collaboration in R&D, the 45th in government procurement of advanced tech products, and the 59th in innovation capacity. At the bottom in this pillar is the availability of scientists and engineers (the 77th). China has an overall rank of the 60th in the world in terms of higher education and training, with the 47th place in secondary education’s enrollment. China does not have adequate advantage in technological readiness, with an overall rank of the 75th in the world, and a rank of the 83rd in firm-level technology absorption. To know China’s overall global status in this respect, we have calculated each country’s scores in overall technological competitiveness by adding up their scores in the aforementioned three pillars and averaging the aggregate, selecting the 19 members of the G20 except the EU, for comparative analysis. The results are shown in Table 4.2: China’s overall score in global technological competitiveness is 3.87, higher than the global average of 3.74, ranking the 53rd among the 139 countries around the world; among the BRIC countries, it ranks just below Brazil (52nd) and slightly higher than Russia (55th), 17 places above India (70th). The top ten economies in terms of global technological competitiveness are Sweden, Switzerland, Finland, the Netherlands, the USA, Denmark, Iceland, Singapore, Taiwan, and Germany.

64

4 China’s Technological Competitiveness: Status and Gap

Table 4.1 China’s global ranks regarding sub-indexes of global technological competitiveness 05. Higher education 60 and training

09. Technological readiness

75

12. Innovation

57

5.01 Secondary education enrollment

47

9.01 Availability of latest technologies

78

112.01 Innovation capacity 59

5.02 Tertiary education enrollment

64

9.02 Firm-level technology absorption

83

1 Quantity of scientific research institutions

69

5.03 Quality of the education system

72

9.03 FDI and technology transfer

59

112.03 Company spending on R&D

76

5.04 Quality of math 83 and science education

9.04 Internet users

70

112.04 University-industry 43 collaboration in R&D

5.05 Quality of management schools

63

Broadband Internet subscriptions

66

112.05 Govt. procurement of advanced tech product

45

5.06 Internet access in schools

68

9.06 Internet bandwidth

70

112.06 Availability of scientists and engineers

77

5.07 Availability of research and training services

70

112.07 Invention patents granted/million persons

76

5.08 Extent of staff training

84

Source WEF’s Global Competitiveness Report 2011–2012

In 2010, China overtook Japan as the world’s second largest economy. To illustrate the technological competitiveness of China, which is related to its economic aggregate, we have compared China with the other members of the G20, which comprises 19 countries plus the EU. These countries generate the vast majority of the global GDP. In 2008, for instance, the G20 accounted for 87.3% of the world’s GDP and had nearly 2/3 of the world’s population.2 Table 4.2 shows that China’s technological competitiveness ranked the 12th among the 19 members of the G20 in 2010–2011. The rankings of the other members of the BRIC are: Brazil, 11th; Russia, 13th; and India, 18th. China’s overall score is 3.94—lower than the average (4.38), 1.52 scores below the USA, which ranks at the top, and 0.33 score higher than India, which ranks at the bottom. A simple calculation shows a relevancy of 0.58 between economic ranking and technological ranking, which means a high correlation between the two. In other words, technological strength is usually accompanied by economic magnitude. Though the Chinese economy has become the second largest in the world, its technological competitiveness is relatively backward and completely out of proportion with the economic strength. A similar phenomenon can be found in countries like India and Mexico: the former ranks the 18th in technological competitiveness but the 10th in economy; the latter ranks at the bottom in technology in the G20 but the 14th in the world in economic aggregate. The top ten countries in the G20 are Germany, Canada, Japan, Britain, South Korea, France, Australia, Saudi Arabia, and Italy. 2 Source

of data: G20’s official website: https://www.g20.org.

4.1 China’s World Status in Technological Competitiveness

65

Table 4.2 China’s overall score and rank in global technological competitiveness Country

Global technological competitiveness indexes Higher education Technological and training readiness

Innovation

Overall score

Global ranking

G20 ranking

USA

5.57

5.23

5.57

5.46

11

1(1)

Germany

5.73

5.61

5.39

5.58

6

2(4)

Canada

5.59

5.4

5.07

5.35

13

3(9)

Japan

5.27

5.06

5.59

5.31

15

4(3)

The UK

5.47

6.08

4.94

5.50

9

5(6)

South Korea

5.44

5.33

4.89

5.22

17

6(15)

France

5.24

5.63

4.72

5.20

18

7(5)

Australia

5.62

5.11

4.48

5.07

21

8(13)

Saudi Arabia

4.81

4.33

4.16

4.43

35

9(23)

Italy

4.69

4.34

3.51

4.18

41

10(8)

Brazil

4.35

3.98

3.5

3.94

52

11(7)

China

4.34

3.57

3.92

3.94

53

12(2)

Russia

4.54

3.66

3.14

3.78

56

13(11)

Indonesia

4.16

3.33

3.59

3.69

68

14(18)

Argentina

4.48

3.71

3.08

3.76

57

15(27)

Turkey

4.02

3.95

3.15

3.71

66

16(17)

South Korea

4.03

3.6

3.53

3.72

62

17(28)

India

3.88

3.36

3.58

3.61

71

18(10)

Mexico

4.07

3.75

3.19

3.67

70

19(14)

Source of data Based on the relevant data in WEF’s Global Competitiveness Report 2011–2012. The world’s 139 economies have an average score of 3.74, and the G20, excluding the EU, has an average score of 4.38. In the last column, the numbers in the brackets are the countries’ global rankings in GDP in 2010 (Source of data IMF)

4.1.2 Competitiveness: Inadequate Input and Output Based on the WEF’s data, this section makes a summary of China’s international status in technological competitiveness and its gap from other countries. It mainly involves a comparison between China and other major members of the G20 in technological input and output, from the perspective of several input/output indexes that reflect technological development. The data used here are mainly from reports released by the OECD, the World Bank, and the US Patent and Trademark Office. Table 4.3 lists the world’s major R&D spenders. China ranks third in overall spending, second only to the USA and Japan. However, there is a wide gap between China and those two countries (Wu 2010). In 2007, for instance, China’s overall

66

4 China’s Technological Competitiveness: Status and Gap

Table 4.3 Major countries’ R&D spending (2007) Percentage of total spending (%) Country

R&D spending Industry (PPP, × 100 spending million USD, prices in 2000)

Government spending

Other sectors

R&D personnel per million people

The USA

3114

66.2

28.3

5.5

1.43

Japan

1246

77.7

15.7

6.6

0.94

China

871

70.4

24.6

5.0

1.74

Germany

587

68.0

27.8

4.2

0.51

France

356

52.0

38.2

9.8

0.37

Britain

333

46.5

30.0

23.5

0.35

Source of data OECD’s online database: https://stats.oecd.org/Index.asp. PPP stands for purchasing power parity. The numbers of R&D personnel per million people date from 2006 for the United States and 2007 for the other countries. The research by Wu (2010, p. 352) was also consulted

spending was 28% of the US number and 70% of Japanese number. In terms of spending by sector, the Chinese government contributed 24.6%, at a level only higher than Japan. China has 1.74 R&D personnel per hundred people, slightly higher than the number for the USA, which is 1.43. R&D spending intensity, or the proportion of the whole society’s R&D funds in the GDP, is an important measurement of a country’s spending on science and technology. In Fig. 4.2, which illustrates such intensity in the G20 countries in 2007, China ranked the 10th with an intensity of 1.44. There was a wide gap between China and developed countries like Japan and the USA. Japan had the highest intensity, at 3.44, or 2% points higher than China’s. China’s R&D spending intensity was below that of South Korea, which ranked the second, by 1.78% points, and was equivalent to 52.94% of the USA. As one of the major forms of technological output, patents have strong geographic features because they can only be granted by a particular country or region if their owners intend to use the patented technologies in the corresponding market (Grupp and Schmoch 1999). Because of this, patent applications to developed countries and regions are often used as a significant indicator of a country’s technological competitiveness (Feinberg 2004, Grupp et al. 1999). US patents are particularly valued because the USA has the world’s largest market and most advanced science and technology. An US patent for a technology implies a high degree of global competitiveness and sophistication. Table 4.4 shows US patents granted to the G20 countries except the USA in 2010, when a total of 111,822 patents were granted to countries and regions other than the USA by the Patent and Trademark Office. Among these, 90,533 patents, or 80.98%, came from G20 countries (excluding the USA). Japan ranked at the top, with 44,814 patents granted, which accounted for 40.08% of all the US patents owned by countries other than the USA. Only 2657 patents were granted to China, representing a share of 2.38% and marking a wide

4.1 China’s World Status in Technological Competitiveness

67

Saudi Arabia

Mexico

Argentina

Turkey

India

South Africa

Brazil

Russia

Australia

China

The UK

Canada

France

Germany

Australia

the US

South Korea

Source of data: the World Bank’s “World Development Indicators 2011”. The data date from 2006 for Australia and 2007 for the other countries. Indonesia’s data is not unavailable, and all the other countries are members of the G20.

Fig. 4.2 G20 countries’ R&D spending intensity. Source of data The World Bank’s “World Development Indicators 2011.” The data date from 2006 for Australia and 2007 for the other countries. Indonesia’s data is not unavailable, and all the other countries are members of the G20

gap from Japan and South Korea. Further analysis would reveal that about 60% of the 2657 patents were from R&D centers set up by foreign companies in China. If this part is excluded, the number of US patents from China will decrease by more than 50%.

4.1.3 Comparison in Global Innovation Capacity Enterprises play a leading role in technological progress, which would be impossible without their development of advanced technology. The technological strength of research institutions and universities is only a potential advantage. In globalized competition, enterprises cannot win without global innovation capacity. In particular, the obtainment of patents from the USA, which has the world’s largest market and most advanced science and technology, has always been regarded as an important sign of a company’s global innovation capacity. Additionally, the number of companies that have made it to the World’s Top 500 is also considered a major indicator of a country’s rise in economic strength. In 2010, 54 Chinese companies (including some in Hong Kong and Taiwan) became members of the World’s Top 500. To discover their global technological competitiveness, we have compared the respective foremost ten

68

4 China’s Technological Competitiveness: Status and Gap

Table 4.4 US patents granted to G20 countries (2010) Country

Number of US patents granted in 2010 Proportion in the US patents granted to all the countries (%)

Japan

44,814

40.08

Germany

12,363

11.06

South Korea

11,671

10.44

Canada

4852

4.34

France

4450

3.98

Britain

4302

3.85

China

2657

2.38

Italy

1798

1.61

Australia

1748

1.56

India

1098

0.98

Russia

272

0.24

Brazil

175

0.16

South Africa

116

0.10

Mexico

101

0.09

Saudi Arabia

58

0.05

Argentina

45

0.04

Turkey

29

0.03

6

0.01

111,822

80.98

Indonesia Total

Source of data US Patent and Trademark Office: https://www.uspto.gov/web/offices/ac/ido/oeip/ taf/cst_utl.pdf

members of the World’s Top 500 Companies of China, South Korea, and the USA in terms of the number of US patents granted to them during the past five years (2006– 2010). Only four of the foremost ten companies of China have US patents, with a total number of 72, at an average of 7.2 for each. Eight of the foremost ten South Korean companies have US patents, with a total number of 58,382, at an average of 5838.2 for each. All the foremost ten US companies have US patents, at an average of 1512.2 for each (see Fig. 4.3). As shown by the foregoing global comparisons in three aspects, despite China’s tremendous economic achievements in the past three decades since the advent of the reform and opening up, which have made it the world’s second largest economy, the nation remains relatively backward in the arena of technological competition. The technological gap has led to weakness in several aspects. In terms of economy, China exports products with low-added value and narrow profit margins at the lower end of the global industrial chain. Chinese labor is cheap, with a significant number of people unprotected or inadequately protected by social security. China attracts foreign capital with cheap energy and preferential land policies, but it suffers from

4.1 China’s World Status in Technological Competitiveness

US

South Korea

69

China

Source of data: US Patent and Trademark Office (www.uspto.gov)

Fig. 4.3 Average number of US patents granted to the foremost top Chinese, USA, and South Korean companies, 2006–2010. Source of data US Patent and Trademark Office (www.uspto.gov)

a shortage of energy sources and incurs enormous social costs due to high carbon emissions and the heavy pollution of air and water. Some multinational corporations and other foreign patent owners charge exorbitant fees for technology transfer, profiting from the monopoly of knowledge. In terms of national security, backwardness in space technology, biological and genetic technology, and technologies for information network, satellite positioning, national defense and energy also threaten China’s information, defense, territorial and maritime security. Without technological progress, China would be unable to enhance its competitiveness and safeguard its national security interests.

4.2 Catching Up with and Overtaking Technologically Advanced Countries: China’s Strategic Choices Proper handling of the relationship between independent R&D and technology imports is crucial to efforts to achieve national technological advances Research has shown that a country’s level of technological progress is a function of independent R&D, technology import, and the relationship between them (Blumenthal 1979; Kumar 1987). Historically, each nation that succeeded in overtaking others was a paragon of an organic combination of the two for mutually complementary effects (Hobday 1995; Katz 1982; Madanmohan et al. 2004; Wu 2008; Sun and Shen 2007; Li 2007). The overtaking of Britain by the USA, Germany, and France in the nineteenth century, Japan’s rise in the twentieth century, and the success of the Four Asian Tigers have fully illustrated that technology import is essential to a nation’s

70

4 China’s Technological Competitiveness: Status and Gap

technological and economic progress. There have been no precedents in which a developing country managed to catch up with a developed one merely through independent R&D. In addition to an introduction to the overtaking strategy, this section will make a brief review and analysis of the history and evolution of China’s strategy for technological progress in order to reveal that the overtaking strategy is the only correct option for us at the current stage of technological development. Besides, it will be emphasized in particular that our overtaking strategy may come up against a host of international challenges in the next thirty years. Objectively speaking, we have not yet attained a level of technology that is commensurate with our economic strength. In the dynamic progress of competition, we have made some progress but, on the whole, developed Western countries have moved forward even more quickly so that the gap between China and them has widened rather than narrowed. This has barred Chinese enterprises from the virtuous cycle of “import, absorption, trial production, and independent innovation.” At the National Science and Technology Conference in 2006, the strategy of building an innovation-oriented nation was announced, which is aimed at a significant breakthrough in China’s technological competitiveness based on independent innovation. This can be regarded as a milestone marking the advent of an “overtaking” stage in China’s science and technology strategy. Since then, a number of major programs have been launched, followed by the design for the seven strategic emerging industries,3 government procurement, the formulation of technical standards, and industryrelated supporting policies. Government-led innovation initiatives have come to the forefront, drawing attention from developed Western countries interested in China’s independent innovation policy and also giving rise to controversies. In particular, the most important issue is the government’s role in independent innovation. Technological progress is closely related to a country’s structure of natural resources, yet it is also essential for Chinese enterprises that wish to raise their technological standards to be able to share the high-tech cake with those in developed countries amid international competition. Besides, though scholars at home and abroad have acknowledged Chinese enterprises’ positive role in high-tech fields (e.g., the sharing of high R&D costs and joint efforts to push forward the technological frontier for the benefit of the world and its people), there remain disagreements between China and the West regarding the roles of the market and the government in the promotion of technological progress. The common wisdom in the West is that the job should be done by enterprises, and that the government, which serves to subsidize the R&D process, should refrain from too much intervention that might disrupt the order of market competition. In 2006, when China’s independent innovation strategy was launched, China’s per capita GDP was equivalent to less than 5% of that of the USA, which is seriously at odds with the natural resource structure required for high-tech development. As a result, the international community is bound to be concerned about the government’s 3 The

seven industries refer to energy conservation and environmental protection, new-generation information technology, biotech, sophisticated equipment manufacturing, new energy, new resources, and new energy automobiles.

4.2 Catching Up with and Overtaking Technologically …

71

Table 4.5 Per capita GDP (USD) USA

Japan 2695

South Korea 1197

China

India

818

665

1955

10,970

1965

14,017

5771

1578

945

785

1975

16,060

10,973

3475

1250

900

2006

44,822

34,150

17,547

2039

2010

Source of data Maddison, A. 1995. Monitoring the World Economy, 1820–1992, Paris: OECD 2005: https://www.photius.com/rankings/economy/gdp_per_capita_2010_0.html

excessive intervention in enterprises’ innovation activities. The per capita GDP of several typical countries in milestone years are listed in Table 4.5. In the 1960s, Japan attained a stage featuring technology- and capital-intensive industries, such as iron and steel and automobile industries. Japan’s per capita GDP was equivalent to about 50% of that of the USA at the time, and grew rapidly since then. In the 1970s, when South Korea also attained a similar stage, its per capita GDP was equivalent to about 20% of that of the USA. However, the development afterward was not smooth, and the South Korean government provided more assistance to those industries and spent more time doing so than the Japanese government did (Lin 2004). Therefore, given such a natural resource situation, it is obviously an enormous challenge for China’s government and enterprises to launch a high-tech development strategy. On the one hand, the independent innovation strategy is challenged by the lack of innovators. State-owned enterprises (SOEs) occupy a prominent position in the Chinese economy, enjoying absolute monopoly in key areas. However, they have not developed an innovation capacity that is commensurate with their prestige. Surveys have shown that over 70% of the Chinese industrial SOEs have no R&D institutions, that over 65% of them conduct no R&D, and that their R&D spending accounts for less than 1% of their sales income (Jin 2007). However, international experience shows that, if R&D funds account for less than 3% of sales income, an enterprise will lose competitiveness; if the percentage drops to below 2%, it will be at the risk of being kicked out of the market. In China, due to the poorly developed market and competition mechanism, even in relatively developed regions, such as Zhejiang, Shanghai, and Jiangsu, the large- and medium-sized industrial enterprises have yet to attain the stage of gaining market superiority on the strength of innovation capacity only. Instead, most of them are still relying for their survival on policy protection and advantage in cost and scale. On the other hand, while pursuing the overtaking strategy, we are faced with a fundamentally different international social and economic environment that was facing Japan and South Korea during their transformations. In the 1960s and 1970s, there was not yet a high awareness of intellectual property protection, and the government was able to adopt many industrial policies, such as those for the control of investment, technology transfer, and foreign exchange rate. Nowadays, however,

72

4 China’s Technological Competitiveness: Status and Gap

such convenience and policy instruments are no longer available. Under such circumstances, there is no choice but to rely on the government’s deep intervention and, in particular, its assistance to enterprises with low innovation capacity. Across the world, government intervention in innovation exists in all countries, with only slight difference in degree. However, in most countries, such intervention is confined to supporting pre-competitive R&D, as per relevant provisions in the WTO’s Agreement on Subsidies and Countervailing Measures. That is why China was frequently criticized by Western countries for its independent innovation policy in the past five years. For instance, regarding procurement, the Chinese government requires that preferential policies be only available to Chinese enterprises with independent intellectual property rights, or China-controlled companies with trademarks registered in China, or with software whose source code is open to China. For instance, in 2009, the Ministry of Science and Technology issued a document that required all products sold to the government be manufactured in China, only to be compelled to rescind that policy due to strong protests from Western enterprises and governments. Similarly, in 2010, the Chinese government was forced to revoke the requirement that all software sold by foreign companies to Chinese SOEs be open source. In 2011, during his visit to the USA, President Hu Jintao had to promise to take corrective measures for abolishing the connection between the independent innovation policy and the priority given to the government’s localized procurement. Therefore, if improperly handled, the current strategy of independent innovation is likely to lead us back to the planned-economy practice of mobilizing resources by administrative means and allocating them according to the state’s will, with research and business activities directly organized by government-led SOEs, and decisions on what key technological or industrial challenges to overcome made by government leaders. This practice is not unfamiliar to us. In the past decades, we have formulated a number of high-tech development programs accompanied by so-called confirmation of high-tech content, which required enterprises to apply the key technologies they had obtained to production. However, as Wu (2007) has noted, both domestic and foreign experience has shown that this practice, though useful for a couple of key issues, is ineffective as a principal policy for the entire national economy because it is predicated upon a misunderstanding of how technological progress works. What, then, should China’s technological strategy be like? We believe that it should be based on a global perspective, for globalization will be a cornerstone for China’s efforts to become an innovation-oriented nation and its progress toward a great national revival. Only through multilateral win–win cooperation based on comparative advantages can China become a major economy not only in size but also in strength. At present, China should adhere to the strategy of building itself into an innovation-oriented nation and try to achieve breakthroughs in key areas where national social and economic development is impeded.

4.3 Conclusion and Prospects: Innovation-Oriented Nation …

73

4.3 Conclusion and Prospects: Innovation-Oriented Nation and the National Competitiveness Pattern There is no doubt that China will become one of the world’s two largest economies in terms of total wealth during the first half of this century. However, it will be more important for China to develop commensurate strength in all respects, which must be based on technological and economic competitiveness. Professor He Chuanqi has made a distinction between the first modernization, which mainly involves traditional industrialization, and the second modernization, which is based on knowledge economy. In my Where Will China Go, I made an evaluation of China’s first modernization process as of 2008. In his opinion, China has completed 68.5% of that process, passing from the middle stage into the late stage. China is now experiencing a combined progress in both the first and the second modernization, which makes it necessary to improve the quality of the former and accelerate the latter. This has to be achieved through the implementation of the innovation-oriented nation strategy. In the next three decades, if the world economy excluding China grows at an annual rate of 4% and if China’s GDP grows by 7% per year, considering RMB appreciation and other factors, China will have one fourth of the world’s GDP by 2040. Ten years from then, by 2050, China will generate one-third of the world’s GDP.4 Despite these heartening prospects, China has a large population and relative shortages in land, minerals, freshwater, and other resources. This, coupled with the worldwide emphasis on ecological protection and restriction on carbon emission, compels us to develop the service industry, makes full use of labor resources and, more importantly, relies on continuous progress of science and technology. In the next thirty years, such progress is expected not only to drive economic growth, but also motivate ecological restoration, protection and development, the advance of the socialist cause, the development of the nation in all aspects, and ultimately the modernization of the whole country. China needs to carry out an overtaking strategy for technological progress and build itself into an innovation-oriented nation. Seizing the opportunity offered by the combined advantage of low-cost R&D and low-cost manufacturing, China may increase the contribution of technological progress to economic growth from the current level of 45% to more than 60%, and even beyond 70% by 2040 in order to become a modernized power in both economy and technology. Its competitiveness ranking is expected to rise into the top ten or even the top five. Regarding technological progress, China should cherish great aspirations and farsighted goals, make and carry out an overtaking strategy, identify the key areas, and accelerate the reform of the science and technology system. If these are accomplished, China may be able to raise its ranking in technological competitiveness from the 53rd place to one of the top 15, becoming one of the world’s most important technological and economic centers.

4 Zhou

Tianyong: Where Will China Go, People’s Daily Press, March, 2009.

Part III

China’s Trade and Currency Strategies

I have argued that lying at the foundation of a country’s global competitiveness, strategic position, and partnerships is its population and geographical layout. Yet under the condition of economic globalization, both the division of labor and collaboration among countries depend on currency-mediated international trade, through which the movements of resources and technologies, industrial development, and competition take place. There are, therefore, two most important questions in international economic relations. First, with respect to trade relations and trade strategies, how to choose between protectionism and free trade? With respect to global market competition, how best to cooperate through negotiation and bargaining? What kind of international trade strategies should China adopt? Second, with respect to international currency strategy, might a new world outlook emerge? What role should the Renminbi play in that new world? And what should China do to advance the internationalization of RMB?

Chapter 5

China’s Trade Strategy Amid Economic Globalization

Trade between countries and regions is developed as a result of the differences in their natural resources and stage of industrial development, the distribution of industries around the world, and the disparities between big and small countries. China is now the world’s second largest economy and is likely to become the largest in the future. How to form favorable trade relations and strategy amid economic globalization is of crucial importance to China’s national interests in the twenty-first century.

5.1 The Four Key Points of the “Value Chain Climbing Strategy” The four key points of the “value chain climbing strategy” are technological innovation, brand cultivation, channel construction, and resource support, which are expected to develop in harmony. The ultimate purpose is for China to keep climbing up the value chain and transform from the center of the international manufacturing network into a focus of the global value chain.

5.1.1 Promoting Innovative R&D for Greater Innovation Capacity at the Front End of the Value Chain As an upper-end link of the value chain, innovative R&D has the highest added value and strongest core competency. First, it is necessary to vigorously enhance enterprises’ innovation capacity. A financial and tax policy system that promotes innovation by enterprises should be established to guide the gathering of innovation factors, encourage enterprises, industries, universities and research institutes © Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_5

77

78

5 China’s Trade Strategy Amid Economic Globalization

to establish innovation unions, and inspire enterprises to conduct joint innovation at various stages. Second, we should promote and expand the scope of independent and collaborative innovation, accelerate the creation of a system for the accreditation and evaluation of independent innovation products, import core technologies and incorporate them through our own R&D, and build a peripheral protection network for essential independent patents, in order to foster the independent core competency of industries. Third, full use should be made of the policy function of intellectual property (IP) rights. We should lose no time in formulating and implementing an IP strategy, encourage application for independent IP rights, strengthen IP management for innovation and the industrialization of its results, enhance IP-related law enforcement, and encourage enterprises to assign a central role to innovation in their business strategy.

5.1.2 Developing Brands to Enhance Soft Power at the Rear End of the Value Chain Internationally renowned brands epitomize a nation’s overall competitiveness and enterprises’ intangible assets. Though China is already the world’s largest economy and biggest exporter, few Chinese brands are among all the brands developed by the World’s Top 500 Companies. Brand management plays an irreplaceable role in generating high added value at the rear end of the value chain. The lack of brand competitiveness has become a bottleneck in China’s climb up the value chain. Therefore, on the one hand, import-oriented companies should be more devoted to developing their own brands through the integration of their strengths in technology, management and process, in order to foster their core brand competitiveness and soft power. On the other hand, the vast domestic market should be used to create a favorable environment for the growth of Chinese brands. Efforts should be made to eliminate the regional and institutional barriers so that a unified domestic market serves as fertile soil for the cultivation of Chinese brands.

5.1.3 Encouraging Enterprises to Build a Global Marketing Network First, Chinese enterprises should be supported in their proactive efforts to “go out” and build an integrated global marketing network based on production and export and comprising market survey, logistic transport, after-sale service, and brand management. Second, Chinese enterprises should be encouraged to cooperate with foreign companies in building urgently needed marketing channels through joint investment or making the latter shareholders or even controlling shareholders.

5.1 The Four Key Points of the “Value Chain Climbing Strategy”

79

Third, Chinese enterprises should be encouraged to build a union of global marketing networks in order to maximize the spillover effects of the creation of such networks by individual companies, enhance their influence and efficiency, and achieve interconnection, mutual assistance and mutual complementation between them.

5.1.4 Increasing Pricing Power in Commodity Trade Since China has a low per capita share of resources and serious reliance on key raw materials, the cost pressure caused by fluctuations in commodity prices will pass from one level to another and spread throughout the value chain, eventually affecting the competitiveness of Chinese products in global trade. Therefore, to guarantee such competitiveness, it is essential to increase our bargaining power in commodity trade and enhance our capacity for obtaining resources. First, the futures prices of China’s commodities with global influence should become main international baseline prices amid the process of building China into a global financial center. Second, an authoritative commodity quoting system that can faithfully reflect market supply and demand and that is commensurate with China’s status in the global market should be formed amid the process of building China into a global trade center. Third, a professional ocean fleet system for Chinese enterprises should be organized and an independent commodity logistics system should be established more rapidly amid the process of building China into a global shipping center. Fourth, the global strategic configuration of energy and resources for China should be enhanced amid the evolution of the world economic pattern and the decline in estimated value at the stage of global economic recovery.

5.2 Implementing a Win–Win Trade Strategy With the development of China’s economy and its national strength, the international identity of China has become an increasingly complicated and sensitive issue. On the one hand, to realize and defend its national interests more effectively, China needs to shoulder the responsibility for protecting the interests of developing countries at large. On the other hand, with the growth of China’s international influence as an emerging economy, all countries expect it to undertake due obligations as a great power and contribute to the smooth development of the international order. How to strike a smart balance between its identity and international expectations will be one of China’s major challenges. Already the world’s biggest exporter and second largest importer, China will surely become the No. 1 importer in a couple of years. Therefore, a major and unavoidable issue is how to make the most of its trade influence. Judging from the current trend, implementing a win–win trade strategy will be a key step for

80

5 China’s Trade Strategy Amid Economic Globalization

China’s playing an international role that is commensurate with its strength. Besides, it will also be a strategic decision for China’s realization of its global aspirations.

5.2.1 The Global Climate for the Win–Win Trade Strategy Win–win cooperation has been made possible by the deepening of economic globalization, which requires closer economic ties between nations, mutual reliance, and intensified collaboration. Amid the globalization process, trade in goods is expanding, and significant changes have taken place in both trade institutions and the trade pattern. There has been a rise in the status of international service trade, a rapid growth of transnational investment in the service industry, a deepening of financial globalization, a fast increase in the scale of transactions in the financial market, and a diversification of financial products. The derivative instrument market has become central to derivative transactions, accompanied by frequent M&A in derivative markets around the world. The scale of FDI has grown steadily, with a gradual rise in the share of developing countries and a concentration of FDI toward the service industry. Multinational companies have become a principal instrument for the globalization of production. Despite increasingly close economic ties between countries, global economic imbalance has worsened and challenges to national economic security have become more noticeable. Economic globalization coexists with protectionism, featuring a widening North–South divide and growing awareness of national interests among developing countries. Against the general backdrop of rapid globalization, “mutual benefit” ought to become a new principle of international relations.

5.2.2 Practical Demand for the Win–Win Trade Strategy On the international level, the enormous trade scale and the rapidly increasing market share have made it difficult for China to sustain its export-oriented model. On the one hand, the competition pressure from Chinese products and China’s energy consumption has posed a challenge to other countries’ economic security. On the other hand, the rapid rise in China’s market share has tipped the “balance” of other countries’ global trade relations. Since its entry into the WTO, China’s export has grown very fast, causing a dramatic increase in trade surplus. This has also given rise to a rapid increase in other countries’ trade remedy and new trade protection measures against China. From a domestic perspective, the export-oriented model has distorted the allocation of production factors and undermined the foundation of comparative advantages on which it relies. The anticipated “technology spillover effects” have proven to be rather limited. On the one hand, the decrease in China’s export-related comparative

5.2 Implementing a Win–Win Trade Strategy

81

advantages, the rise in labor cost, and the pressure of continuous RMB appreciation will lead to a steady increase in export cost. Besides, since the rise in energy and mineral prices has further increased environmental cost, the extensive model of foreign trade growth featuring high spending, high consumption and low efficiency has become unsustainable. On the other hand, China’s foreign trade is not efficient and profitable, and its technological spillover effects are not quite noticeable. In particular, processing, which comprises half of China’s foreign trade, brings relatively low economic returns and provides very limited impetus to the national economy. Moreover, due to its strong reliance on foreign technology, China has failed to make full use of the technology spillover effects of export, especially processing trade.

5.2.3 An All-Dimensional and Multilevel Win–Win Trade Strategy In the long run, China’s trade dynamics will change as follows: On the one hand, industries will be upgraded, and low-end industries will transfer toward South Asia and Africa. In particular, China has to guard against competition from South Asian economies in terms of industry and market. From now on, it has to make plans as to how to form a trade protection system equipped with effective countermeasures. On the other hand, China needs to oppose developed countries’ new trade protection system and measures so that its products, which are being continuously improved in both technology and quality, could enter the markets of developed countries in Europe and the USA. Regarding the long-term scheme, China needs to become a major trading and manufacturing country not only in scale but also in strength through the following strategy and tactics: firstly. improve the technological level and quality of products; secondly, with the progress in independent innovation, product technology and management, form our own product and export service standard system and apply it to import and export; thirdly, form a well-developed intellectual property system for trademarks and other IPRs, foster and protect national brands, and enhance the competitiveness of domestic industries; fourthly, develop a domestic judicial system for dealing with foreign lawsuits and a protection system regarding import in terms of legislation, litigation and investigation. Firstly, the win–win trade strategy should center on national interests and involve multiple goals. National interests are eternally central to a country’s trade development strategy. The multiple goals should include both economic objectives and non-economic ones. The former includes balanced and coordinated development of trade, sustainable economic development, and fair and free trade; the latter comprises national security, balanced social development, and mutually beneficial foreign economic relations. Export should be regarded as a means for social and economic development rather than an end in itself. It is noteworthy that adjustment

82

5 China’s Trade Strategy Amid Economic Globalization

of the strategic goals does not mean to abandon export; instead, the purpose is to emphasize that China will no longer develop export trade at all costs or increase export through the distortion of policies, and that China will participate in international competition with normal “comparative advantages,” bringing to light all the implicit costs, such as environmental costs, land costs, resource costs, labor costs, and even RMB costs. Secondly, export trade should be promoted through policy measures and instruments that comply with international trade norms rather than distort them. Internally, China should continue to improve the existing trade promotion policy system within the WTO framework, regarding export tax rebates and public information, among other services; support for service trade should be increased through such policies as zero tax rate and service subsidies within the WTO’s limits; efforts to investigate and complain against foreign trade barriers should be intensified. Within the WTO framework, China should promote the process toward free multilateral trade and expand the market for exported Chinese products through accelerated implementation of the regional/bilateral economic integration strategy. The WTO’s dispute resolution mechanism should be used to step up negotiations with major trade partners and protect the export-related interests of domestic industries and enterprises. Thirdly, an import strategy should be formulated and implemented at a faster pace. As the world’s second largest importer, China should make good and proper use of its import policies which, apart from serving its economic development and protecting economic security, can help to create an international political and economic environment that is favorable to peaceful development. The import strategy should serve to promote economic growth by shaping the import structure and stepping up the efforts to import technologies for industrial restructuring and economic progress. The import market should be diversified to circumvent international economic risks, with emphasis on regional economic integration. The supply of key strategic supplies should be guaranteed through the following efforts: diversification of the import market for avoiding risks; using the enormous foreign exchange reserves to replenish the reserves of strategic supplies; gaining pricing power regarding key imported products through various channels. Fourthly, a policy for controlled trade liberalization should be implemented. This involves the following: (1)

This policy is eventually inclined toward free trade. Its implementation can vary in degree, timing and sector according to different needs and considerations. Regarding trade in goods, the process of trade liberalization involves regulation and gradual reduction of trade barriers, the regulation of non-tariff measures and their transformation into tariff measures, and the reasonable setting and gradual lowering of tariff levels. Regarding trade in services, it involves the gradual expansion of market access and the giving of national treatment. With respect to trade-related investment measures, it involves the regulation and gradual abolition of those measures that have obvious and direct distorting and restrictive effects on trade, including investment incentives and investment restrictions. With regard to trade-related intellectual property measures,

5.2 Implementing a Win–Win Trade Strategy

(2)

(3)

83

it involves the improvement of IPR protection, measures to control the abuse of IP rights, and the strengthening of IP-related law enforcement. The process of trade liberalization should be properly controlled. Macrocontrol and appropriate supervision by the government are needed in response to the risks in the process. Import risks involve both economic and noneconomic factors. The former mainly includes support for key industries and fledgling industries, international balance of payments, and industry damage and market disruption by unfair trade. Non-economic factors comprise national security, employment and income distribution, regional development, and the rights to health and welfare. Import-related risks involve key strategic supplies, special products, goods in short supply at home, limited market capacity in the importing country, and import disorder. These, incidentally, also form the bulk of the WTO’s exception clauses and exemption clauses. The relationship between trade liberalization and control is one of mutual reliance. Control is necessary to and reflective of trade liberalization, which in turn has to be supported by control measures. The purpose of control is to promote the balanced development of trade liberalization and prevent or dissolve the risks that might emerge during the process. However, control is not equivalent to protection and does not impede the process. It is not biased and will not create any unnecessary barrier to international trade.

Fifthly, the country’s vast domestic market advantage should be further developed. Due to historical practices and other reasons, the division of labor among China’s different regions and inter-regional trade are not well-developed. The domestic market has been divided into regional markets by local protectionism. As for how to eliminate local market barriers and create a genuinely unified national market, experts and scholars have proposed various approaches and solutions that are worth considering for policy-makers, including the following: deepening the financial and tax system reform; establishing a reasonable profit distribution mechanism between the central government and local governments; developing incentives for reducing acts of local protectionism; completely withdrawing local governments from competitive industries; guiding local governments in the shift from “centering on economic development” to “centering on With respect to institutional development”; creating a more scientific political achievement evaluation system that is better adapted to social development; establishing integrated management institutions of greater administrative regions, etc. Reducing administrative barriers, promoting the free flow of capital, personnel, goods and services, and, in particular, furthering reforms in the household registration system and the social security system are all conducive to the construction of a unified market and the realization of the “superiority of a vast country.” Sixthly, the free trade agreement (FTA) strategy should be made full use of to develop the domestic market and realize multiple political and economic objectives. Bilateral and regional economic arrangements are driven by intrinsic and profound motives. Now that the Doha round of trade talks has made no substantive progress in a long time and many economies around the world have started to explore regional trade arrangements, all major economies are already implementing the FTA strategy

84

5 China’s Trade Strategy Amid Economic Globalization

to various degrees. The US State Department believes that FTA is one of the best ways for American exporters to gain access to foreign markets. In particular, in view of the eastward shift of the USA and its strategic focus on and vigorous promotion of the TPP strategy, China urgently needs to reexamine and improve its FTA strategy. First, a specific plan and a roadmap have to be clearly formulated for participation in regional and bilateral cooperation in the next decade. Second, the areas of cooperation should be extended in both depth and scope, and a comprehensive FTA network should be built in terms of imported resources, export market, and the global production chain. Third, the existing Asia–Pacific cooperation mechanisms and programs should be seriously evaluated before clear and flexible tactics can be developed in response to potential impacts.

Chapter 6

China’s Development and the Future World Monetary System

Since the advent modern times, the international monetary system has experienced a transition from the gold standard to the dollar-based Bretton Woods System, and then to the Jamaica System featuring one super currency (the US dollar) and several strong currencies (the pound, the euro, and the yen). Since the global financial crisis in 2008, the development of China’s monetary system and China’s future position in the world economic system and world monetary pattern have involved dollarrelated aspects of China–US relations, with implications for the international status of the Chinese currency in the future. Against the background of the global financial system, all these are strategic issues related to the Chinese monetary system that we need to consider.

6.1 The Future Trend of RMB Appreciation RMB appreciation is an inevitable trend. In the near future, excessively rapid RMB appreciation will have a serious impact on China’s export and its export-oriented industrialization strategy. In the long term, however, RMB appreciation will be a strong trend; with the increase in price, transaction, and scope of settlement and reserves, RMB will surely become a global currency. How, then will RMB appreciate, and how is it supposed to do so? Historical experience in Germany, Japan, Singapore, and Taiwan, among other countries or regions shows that relative improvement of labor productivity is the intrinsic cause of an appreciation trend, and that a country’s import and export scale, economic structure and the magnitude of its economy will further determine the equilibrium price of exchange rates (see Table 6.1). Therefore, based on the historical extents of exchange rate appreciation in various countries as well as China’s economic aggregate, import and export scale, natural resources, industrial structure,

© Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_6

85

86

6 China’s Development and the Future World Monetary System

Table 6.1 Currency appreciation in major emerging countries or amid regional industrialization processes in the late twentieth century Country/region

Period of appreciation

Accumulated appreciation against the US dollar (%)

Japan

1971–1995

270.15

Taiwan

1981–1992

58.98

Singapore

1981–1996

49.91

Germany

1971–1981

31.42

1985–1992

75.55

Source of data Based on relevant data released by Fed. St. Louis (https://research.stlouisfed.org/.)

and population structure, there are three kinds of projection about the RMB’s appreciation trend in the next three decades: the low trend, appreciation by 70–100%; the middle trend, 150–200%; the high trend, 250–300%. The specific trend of RMB exchange rate mainly depends on China’s potential for raising labor productivity and the effects of the adjustment of its economic structure. Besides, the RMB’s appreciation is unlikely to be a rapid and continuous process. On the contrary, it will be a gradual process that may be accompanied by ups and downs. In December 2011, the RMB’s spot exchange rate hit the limit down for eleven trading days in a row, showing that the appreciation trend will not continue unilaterally. However, the RMB appreciated rapidly after the USA launched the quantitative easing monetary policy. These phenomena, which reflect the demand for trade and the influence of speculative activities, also indicate that at a certain stage of the appreciation course the RMB’s exchange rate may approach the implicit equilibrium level or a temporary point of equilibrium in exchange supply and demand. This is determined by a country’s exchange rate level and, ultimately, by the relative labor productivity in its articles of trade sector. Once the rise in China’s labor productivity slows down vis-à-vis the USA, the exchange rate fluctuations will become bilateral, showing signs of approaching the equilibrium level. A second aspect to recognize is that RMB appreciation is a double-edged sword for the future of the Chinese economy. The favorable effect is that the RMB can be gradually regionalized and internationalized during the process, thereby becoming a settlement and reserve currency for China’s principal trade partners, if not the whole world. If so, it will effectively reduce the currency exchange cost in Chinese companies’ foreign trade. Besides, with China’s increasing demand for imported oil, iron ores, and other resources, RMB appreciation can directly lower the costs of labor, technology, and resource-related products. The stability of RMB’s value, continuous appreciation, and the expectation for appreciation will enhance its status in the global monetary system and international financial arena, increasing China’s right to speak in the world financial system. RMB appreciation will also be conducive to China’s adjustment of its industrial structure through its pressure on backward industries. The results of empirical research into the impact of the appreciation of the national currency’s exchange rate in China and other countries have confirmed the opinion

6.1 The Future Trend of RMB Appreciation

87

that RMB appreciation is conducive to the steady growth of the Chinese economy and its structural transformation. For instance, research by Fan and Yu (2011)1 has shown that RMB appreciation between 2005 and 2008 had a certain negative impact on the production and operation of China’s export-oriented enterprises—to various degrees; however, the impact was different for different types of enterprise. There was a relatively serious negative impact on labor-intensive industries for common trade, a less serious impact on export processing (especially processing with imported materials) industries, but a positive impact on raw material import companies. During the process of gradual appreciation, Chinese enterprises have responded to exchange rate risks, showing a certain degree of resilience; besides, noticeable changes have taken place in China’s industrial structure. The historical study of Germany and Japan by Bin (2011)2 also indicates that the appreciation of their currencies had positive effects on their adjustment of the industrial structure and the raising of the tertiary industry’s proportion in the national economy. RMB appreciation will also produce many adverse effects, which are covered by the empirical studies by Zhang Fan and others. For instance, it will directly cause a rise in the foreign currency nominal price of the products of textiles and other industries and weaken their competitiveness, making it difficult to increase their export. Because of the rise in nominal wages and other costs as a result of a higher exchange rate, main labor-intensive industries will find it difficult to survive in China and have to transfer to Southeast Asia or other regions with relatively low labor costs, which will reduce the number of jobs and increase employment pressure at home. Industries like iron and steel will be facing exchange rate risks in their daily investment and trade activities; that is to say, the trend of exchange rate appreciation and the time-lag of orders, among other factors, may give rise to a problem in investment and production: The price of a foreign currency may be higher at the time when raw materials are purchased than when the end products are exported. If so, the affected companies will suffer a reduction in their profits or even sustain losses. China has accumulated immense foreign exchange (FX) reserves thanks to the enormous trade surplus as a result of long-term trade imbalance. The appreciation of the Chinese currency has caused tremendous losses in the form of a steady decline in the book value of the FX reserves. However, according to the conclusion drawn by Lu (2011),3 there are certain misunderstandings about the defects of RMB appreciation. For instance, despite the decline in the book value of China’s FX reserves, no substantive losses will occur so long as they are not converted into RMB. Therefore, regarding the management 1 Zhang

Fan & Yu Miaojie. “The Impact of RMB Exchange Rate Adjustment on Foreign Trade Enterprises and Related Industries,” in Exchange Rate Games: Assessment of the Impact of the RMB Exchange Rate Reform [C]. 2011: 92–123. 2 Zhang Bin. “Economic Transformation and the Selection of Exchange Rate Regimes: an International Comparative Study,” in Exchange Rate Games: Assessment of the Impact of the RMB Exchange Rate Reform [C]. 2011: 203–223. 3 Lu Mai. “Six Misunderstandings to Overcome in the Evaluation of the RMB Exchange Rate Reform, a Speech at the Exchange Rate-related Research Project Launch Conference,” in Exchange Rate Games: Assessment of the Impact of the RMB Exchange Rate Reform [C]. 2011: 1–5.

88

6 China’s Development and the Future World Monetary System

of FX reserves, there should be effective control over the returns on investment and the extent of increase. Besides, adjustment of the exchange rate will not have any substantive impact on the steady growth of the Chinese economy. For instance, the impact of RMB appreciation can be effectively absorbed by industries like processing trade, whose raw materials are imported and end products are exported. The calculation model devised by Huang and Tao (2011)4 shows that, if the RMB had not appreciated in the past few years, though China’s real GDP would have increased, inflation would have been more serious, causing a decline in workers’ real wages and aggravating current account imbalance. Therefore, a rational and gradual appreciation in the RMB’s exchange rate is more beneficial than harmful to the overall well-being of the Chinese society. Regardless of the pros and cons, RMB appreciation will be an irresistible trend that should be responded to with proactive measures rather than passively accepted. In this respect, profound lessons can be learned from the faults and failures of other countries in East Asia.

6.2 The RMB Appreciation Strategy and How to Avoid Exchange Rate-Related Losses We have discussed the intrinsic inevitability of the trend of RMB appreciation. During the process, how can the losses from the depreciation of FX reserves be minimized, and how can RMB have a stable influence on import and export and succeed in becoming a world currency? To this end, China needs proper strategy and tactics. A rational and proactive strategy in response to the trend RMB appreciation involves two aspects: Firstly, the strategy for RMB appreciation and the reform of the RMB exchange rate system; secondly, the strategy for the internationalization of RMB. We shall first discuss the former.

6.2.1 Risks of Loss in Foreign Exchange Reserves Due to Exchange Rate Fluctuations Since the new round of RMB exchange rate reform was launched in 2005, there has been a transition from fixed exchange rate to “controlled floating exchange rate based on a basket of world currencies.” In the current system, the RMB’s exchange rate is no longer pegged to the dollar alone, but based on a basket comprising various currencies including the US dollar, the euro, and the British pound. Upper and lower limits are set for the RMB’s exchange rate price every day in order to control the 4 Huang

Yiping and Tao Kunyu. “The Impact of RMB Exchange Rate Adjustment on Macroeconomy and the Well-being of Citizens,” in Assessment of the Impact of the RMB Exchange Rate Reform [C]. 2011: 32–64.

6.2 The RMB Appreciation Strategy and How to Avoid Exchange …

89

range of fluctuations. During the transformation of the RMB exchange rate system, a major problem to solve is how to effectively manage the enormous FX reserves. Currency mismatch is the primary cause of China’s constant accumulation of FX reserves. It refers to the situation where a country cannot issue bonds with its own currency on the international market, leading to the “dollarization” of its debts or the possession of large quantities of unhedged foreign currency assets. Since the RMB is not yet internationalized, it is not accepted by traders or investors due to the fact that it has long been unable to be directly settled against foreign currencies as well as the lack of an offshore RMB market or a direct backflow channel. As a result, RMB has to be converted into US dollars before trade settlements can be conducted with other countries, hence the need to hold enormous dollar assets. To encourage export and help manufacturers avoid exchange rate risks, China had always practiced fixed exchange rate before the reform. Specifically speaking, the central bank would stabilize foreign exchange rates through unified control of foreign exchange settlements via the possession of FX reserves and the issuance of the monetary base. As a result, given the currency mismatch, the need to possess large amounts of foreign currencies (especially the US dollar) for trade activities is embodied by the enormous FX reserves held by the Chinese central bank and their steady increase. After the beginning of the reform and opening up, given the fixed exchange rate system pegged to the US dollar and stringent foreign exchange control, the Chinese central bank accumulated enormous FX reserves thanks to many years’ current account surplus. However, since the foreign exchange reform in 2005, despite the increase in the range of RMB fluctuations and the rise in foreign exchange rates, China’s FX reserves have continued to grow. This, plus many years’ “double surplus” in both current account and capital account, has made China the world’s largest owner of FX reserves (Fig. 6.1). Besides, dollar assets comprise a considerable portion of China’s FX reserves. At present, China’s FX reserves have amounted to 3.1811 trillion US dollars,5 54%6 of which consists of dollar assets in the form of US treasury bonds and dollar securities, the rest being assets in euro, yen, and other currencies. Despite the steady decline in the proportion of dollar assets in recent years and the noticeable trend toward diversified asset allocation, the magnitude of the FX reserves compels us to consider the accumulated risk of asset impairment. For China’s reserve assets in the form of currencies, securities and bonds, expressed in foreign currencies, book value losses will result from the steady rise in the national currency’s effective exchange rate, i.e., the constant depreciation of foreign currencies. The extent of such losses depends on three factors: firstly, the range of exchange rate fluctuations; secondly, the duration of the possession of depreciating foreign currency assets; thirdly, the magnitude of the foreign exchange assets. However, it has to be clarified that book value losses cannot be confirmed until the central bank converts its dollar assets back into national currency assets. 5 The

figured, dated as of Dec. 2011, is from the website of the State Administration of Foreign Exchange (https://www.safe.gov.cn/). 6 Based on information released in news at the website of the Ministry of Commerce (https://www. mofcom.gov.cn/aarticle/i/jyjl/l/201204/20120408050287.html).

90

6 China’s Development and the Future World Monetary System

Fig. 6.1 China’s foreign exchange reserves and the evolution of the yuan-to-dollar exchange rate between 1978 and 20115

Stephen Jen, CEO of the hedge fund SLJ Macro, has estimated that China loses USD130 billion per year due to negative carry in its FX reserves. According to the calculation by Zhang Anyuan, director of the Fiscal and Financial Office of National Development and Reform Commission’s Academy of Macroeconomic Research, RMB appreciation has caused a loss of USD270 billion, or the equivalent of 1728 billion yuan, during the previous eight years in China’s FX reserves. However, the former’s estimation is only based on the cost of carry, lacking consideration of the benchmark interest rate on the market, whereas the latter’s calculation is only a rough estimation based on China’s total FX reserves and the accumulated increase in the yuan-to-dollar exchange rate. The actual extent of losses should depend on the real losses that are incurred when China sells part of its FX reserves or convert it into other foreign currency assets. Since the RMB is still appreciating vis-à-vis the US dollar, China has abated its purchase of dollar assets to control their size and proportion in the total FX reserves, thereby reducing book value losses. In particular, the dollar securities purchased during the 12 months until June 2011 only accounted for about 15% of China’s additional FX reserves, whereas the percentage was 45% in 2010, and averaged 63% between 2005 and 2010.8 Now the proportion of dollar assets in China’s total FX reserves has dropped from 65% in 2010 to 54% in 2011. Based on these data, the dollar assets actually possessed by China have not decreased, meaning that almost none of the book value losses has become reality. Besides, the absolute increase in 5 Based 8 Based

shtml).

on data published at the website of the People’s Bank of China and that of Fed St. Louis. on a report at chinanews.com (https://finance.chinanews.com/cj/2012/03-02/3713160.

6.2 The RMB Appreciation Strategy and How to Avoid Exchange …

91

dollar assets is very limited. In particular, nearly half of the additional FX reserves in 2011 were not dollar assets. The foregoing analysis shows that serious as they are, the book value losses in China’s dollar assets have not been converted into real losses. However, the immense dollar assets that have been accumulated indeed hold enormous risks; though no losses have yet occurred, it does not mean there is no reason for concern in the future. In fact, the third round of QE policy in the USA, as a continuation of the previous two rounds, which involves malevolent issuance of more banknotes for the export of its crisis to the rest of the world, has already posed substantive threat of impairment to China’s dollar bonds. Besides, the diversified allocation of the additional FX reserves means higher requirement for FX reserves management, i.e., how to cope with the potential risk of asset impairment given the fluctuations in the RMB’s exchange rates to various currencies. In response to the threat of losses in FX reserves due to market interest rates and other factors, China Investment Corporation (CIC) was established in 2007 for the possession, management, and operation of USD200 billion out of the FX reserves. CIC’s annual reports show that, by the end of 2010, the corporation’s accumulated annualized rate of return was 6.4%; the rate of return was 11.7% in 2009 and 2010 and is expected to approach that level in 2011. CIC’s overall performance remains good despite the losses from its investment in Blackstone Fund and subsequent losses due to the US subprime mortgage crisis and the dramatic fall of Tokyo Electric Power Company’s shares after the Japanese earthquake-caused nuclear disaster in 2011. As a result, it has received a re-injection from the central bank, which has increased its capital funds to USD250 billion. The successful operation of the sovereign wealth fund will to a large extent help evade the risk of losses in foreign currency assets due to negative carry. As far as the future trend is concerned, the RMB is still on a long course of appreciation. How to avoid the tremendous losses from RMB appreciation is an inevitable foreign economic issue with strategic and tactical significance. China needs to make a proactive response to RMB appreciation. Strategically speaking, it should offset the domestic pressure from industrial upgrading and restructuring and tries to maintain a gradual rise in small steps. More specifically, RMB appreciation can accelerate and slow down alternately, but always in short steps. The main purposes of this strategy are: firstly, to release the excessive expectations of RMB appreciation accumulated in the market and prevent attacks from international hot money; secondly, to grant a grace period to export-oriented Chinese enterprises and exert an appropriate amount of pressure for the transformation of the domestic industrial structure, in order to forestall the occurrence of widespread bankruptcy.

6.2.2 The Strategy and Tactics for RMB Appreciation In view of China’s industrial structure and the degree of RMB internationalization, RMB appreciation can proceed in three stages:

92

6 China’s Development and the Future World Monetary System

Stage 1 is gradual and steady rise, characterized by the restriction of the fluctuations in the daily exchange rates of the RMB, which will keep going up at a relatively slow pace. This will gradually release the market’s excessively high expectations of RMB appreciation and relieve the pressure from hot money speculation. An appropriate degree of control will raise the cost of money flow so that speculative hot money will be held back in China’s capital accounts and become foreign capital inclined toward middle- and long-term investment. Stage 2 involves an increase in the range of bidirectional fluctuations and a generally upward trend. In this stage, instead of going up all the time, the RMB may rise or fall alternately. The range of daily fluctuations can be allowed to grow wider, which should be accompanied by the introduction of new RMB derivative hedging instruments. Besides, RMB pricing power should be gradually devolved to the market. Stage 3 is marked by the natural and modest fluctuations of effective exchange rates. By this stage, RMB exchange rate will have appreciated to a level that is commensurate with China’s labor productivity relative to that of other major economies. Moreover, the bullish and bearish forces, after their competition during the previous stage, will have largely reached a balance. The RMB derivative market will be welldeveloped, and a large offshore RMB market with a high fluidity will have taken shape. By that time, even if RMB pricing power is completely handed over to the market, it will not result in excessive exchange rate fluctuations. Besides, the exportoriented companies will have already developed the ability to avoid exchange rate risks in trade settlements through various financial instruments. The RMB exchange rate reform launched in 2005 was temporarily halted by the global financial crisis. However, the first-stage tasks have been largely accomplished and the pressure from expectations of unilateral appreciation has been relieved. Toward the end of 2011, the RMB showed a short trend of hitting the limit low consecutively. Therefore, the conditions are ripe for transition into the second and third stages of the appreciation strategy. On April 16, 2012, the central bank officially enlarged the range of RMB fluctuations from ± 0.5% to ± 1%, increasing the RMB’s flexibility in bidirectional fluctuations; meanwhile, it also gave permission for short-selling the US dollar. Since then, subsequent measures have been adopted to ensure the continuity of the appreciation strategy. Regarding the specific tactics for RMB appreciation, in various stages of the strategy, China should increase import at appropriate times and adjust trade surplus or deficit; meanwhile, using the interest rate leverage, it should gradually open the RMB derivative market in a well-controlled manner and relieve the pressure of RMB appreciation amid economic development. Meanwhile, it should prevent violent fluctuations in the national economy caused by a sharp appreciation and gradually develop the ability of Chinese companies and institutions to avoid and manage risks. It is also noteworthy that the ultimate goal of the RMB exchange rate reform is a system that allows totally free-floating exchange rates. Therefore, the RMB appreciation trend should eventually give way to market fluctuations. In this process, however, exchange rates should not be adjusted too fast; besides, China should establish and

6.2 The RMB Appreciation Strategy and How to Avoid Exchange …

93

improve market-based mechanisms and institutional arrangements for the management of foreign exchange reserves under the diversified conditions in the future. Upon the realization of floating exchange rate and RMB internationalization, the demand for FX reserves will significantly decrease. The central bank will surely cut back on its FX reserves, and the moment will come to realize the previously accumulated book value losses. Once floating exchange rate is established, the central bank’s FX reserve assets will be facing an enormous challenge in terms of diversified asset allocation and asset value maintenance given the fluctuations in the RMB’s exchange prices against various currencies. Therefore, China should be prepared for that by establishing and improving a relevant legal system and retaining specialized personnel. For their part, China’s export-oriented companies need to develop a mechanism in response to risks in the exchange market under the government’s guidance. Besides, while gearing itself to international standards, the domestic financial market should provide the necessary risk evasion instruments. Most fundamentally, the specific means employed by the central bank and the supervisory agencies should transition from administrative control to market-based management within a legal framework; as for their guiding principles, there should be a change from a government-oriented approach to a market-oriented philosophy.

6.3 The RMB Internationalization Strategy Once internationalized, the RMB will have capital account convertibility and becomes a global currency for pricing, transaction, settlement, and reserves, representing a rise in China’s status in global trade and investment as well as an increase in its economic strength. The following are general strategic guidelines and measures that can be considered during China’s implementation of its RMB internationalization strategy: Firstly, the development of settlement in RMB outside China should be promoted. An important prerequisite for internationalization is to gradually increase the scale of transactions settled in RMB outside China. This can be done in two ways: firstly, spontaneous settlement in civil society, which will increase the quantities of RMB holdings abroad; secondly, intergovernmental institutional arrangements by reaching agreements on currency exchange amid bilateral trade and investment. Regarding the second point, there is an urgent issue to resolve between China and its adjacent countries such as Vietnam and Laos. Despite China’s frequent trade and economic contacts with these countries, framework agreements have yet to be reached for intergovernmental cooperation in settlement via official channels. This has given rise to the popularity of “street vendor banks” in border areas and made it necessary to use large amounts of cash in cross-border transactions,9 posing a serious threat to anti-money laundering operations and transaction security. Therefore, promoting

9 Liu Lizhen, Xu Qiyuan, al. Towards an Internationalized RMB, Renming Publishing House, 2006.

94

6 China’s Development and the Future World Monetary System

RMB settlement in these countries is not only a step toward RMB internationalization, but also imperative for trade and economic contacts. Secondly, offshore RMB settlement centers should be developed stage by stage. China has already established one in Hong Kong, and Singapore, London, and New York, among other places, have also expressed the wish to establish RMB settlement centers and operate RMB assets. By January 2011, Hong Kong’s RMB balance had reached 371 billion yuan. The Royal Bank of Scotland (RBS) has estimated that, at the comparable growth rate in the second half of 2010, Hong Kong’s RMB balance will have increased to 700–800 billion yuan by the end of 2011. Meanwhile, the outstanding offshore RMB securities have amounted to 74 billion yuan, comprising about 20% of Hong Kong’s RMB balance. However, it is noteworthy that offshore RMB centers, which can function as the central bank’s cross-border RMB clearing and backflow centers before the RMB becomes an international currency, cannot manage cross-border investment of RMB assets or do risk-based pricing. Additionally, such centers also serve to enforce the policy for the examination and approval of offshore RMB clearing. In other words, due to China’s current control of its capital account, the offshore settlement centers are not only channels for cross-border RMB circulation, but also control monopoly management and assume public administration duties originally due to the People’s Bank of China, such as capital control. As a result, they have become a firewall and buffer pool between the RMB and the onshore/offshore market. Therefore, offshore RMB centers should only serve as transitional entities for the gradual internationalization of the RMB rather than extensions of domestic administrative control. In the future, the central bank will also roll out the Cross-Border Inter-Bank Payment System (CIPS), which is modeled on the US dollar’s global clearing and settlement system. By then, BOCHK’s exclusive RMB clearing business abroad will also be incorporated into the central bank’s automatic global clearing system, laying the foundation for the total internationalization of the RMB. Thirdly, while improving the management of China’s general accounts and capital accounts for international balance of payments, the range of institutions that are allowed to conduct RMB business should be gradually widened, so that eventually any financial institution can do RMB-related business, which should be accompanied by the full opening of the capital account. At present, the capital account is open in the following aspects: The restrictions on FDI have been lifted, and the restrictions on long-term security investment have been significantly reduced since the adoption of QDII and QFII in 2003. However, short-term foreign debt-related items are still under control. This approach, which involves the opening of long-term items first and a gradual transition to short-term ones, is actually based on the major reason why the financial crisis in 1997 did relatively little damage to the Chinese economy: FDI and other long-term items accounted for a relatively large proportion of foreign capital, making it difficult for short-term hot money to have a direct impact on the domestic financial market and real economy. Therefore, this approach can effectively reduce the proportion of foreign hot money in China’s entire capital account. In view of the current progress in opening up, if the relaxation of capital account control is accelerated to

6.3 The RMB Internationalization Strategy

95

an appropriate degree, the restrictions of the capital account on the capital market, except for short-term foreign debt-related items, should be gradually lifted during the 12th Five-year Plan period. Published research reports have generally recommended the gradual widening of the range of RMB exchange rate fluctuations rather than introducing floating exchange rate too soon. Exchange rate liberalization should not lag behind the opening of the capital account, lest the market mechanism be distorted, leading to capital bubble risks. The onshore market and the offshore market should develop in parallel in order to reduce the risks from the opening of capital accounts. Since the IMF permits the partial control of the capital account in a country with a fully convertible currency, China can restrict the flow of short-term debts even if the RMB becomes fully convertible.10 As for the schedule and sequence of the opening of the capital account, China may refer to the experience of its neighboring countries and regions, such as Japan and South Korea. Starting 1979, Japan spent 15 years opening its entire capital account. South Korea started to open its capital account 25 years ago, in 1986, and has yet to complete the process. Therefore, in view of China’s national conditions and environment as well as the urgency of the internationalization process, the opening of the major categories in the capital account can be completed in ten to fifteen years in the following sequence: firstly, FDI, FDI liquidation, and some private capital flow categories; secondly, cross-border credit business (including commercial credit, financial credit, guarantee, margin, and standby financing tools; thirdly, capital market business items, such as capital market securities, collective investment securities, currency market tools and other tools; fourthly, real estate investment and other special items with significant implications for the national economy and industries. For financial derivatives and special provisions for commercial banks and institutional investors, the opening process should proceed in an orderly manner under differentiated supervision for various categories and levels.11 Fourthly, timely efforts should be made to turn the RMB into an international reserve currency. According to a recent survey of 1,263 economists, analysts and dealers conducted by Bloomberg, most of them believe that free exchange between the RMB and other currencies will be realized before 2016; half of them believe that it will become a reserve currency within ten years (19% think that the RMB will become a reserve currency along with the US dollar, the euro, the British pound, and the yen in five years, whereas 31% predict that this will become reality in ten years).12 In particular, the RMB’s entry into the SDR basket will be a significant milestone in the progress toward an international reserve currency. To that end, the RMB needs to be freely convertible, the amount of the RMB’s deposit capital abroad should be increased, RMB backflow to China should be promoted, and overseas transactions 10 Shen

Jianguang. “Approaches to RMB Convertibility (1): Lifting Capital Account Control is a Crucial Step”, 2011. 11 For the classification of the capital account, see the IMF’s division into 13 categories and 43 sub-categories. 12 Stevenson, Alexandra. “RMB to Challenge the USD in a Decade,” in Financial Times, May 16, 2011. See the article at https://www.ftchinese.com/story/001038604/ce.

96

6 China’s Development and the Future World Monetary System

and use of the RMB should be increased. However, it should be noted that radical and forcible promotion of RMB internationalization may be too costly, resulting in more loss than gain. A case in point is Japan’s efforts to internationalize the yen, which fell short of the objectives, in the 1980s and 1990s. The yen’s weight among international reserve currencies dropped back to the level before those efforts were made, which was accompanied by heavy economic losses. Fifthly, RMB internationalization calls for supporting reforms and necessary preparations in at least five aspects: Firstly, interest rate reform—a reasonable market mechanism should be formed so that the interest rate can faithfully reflect the supply–demand relationship of market funds. Secondly, the monopolized domestic bank system should be gradually reformed. Various forms of financial institution, such as community banks and mutual financial assistance, should be allowed to develop in order to legalize and regulate underground finance and financing channels in the civil society, forming a rational competition structure in the financial market. Thirdly, the exchange rate control should be gradually relaxed and the fluctuation range be widened to form a market-oriented exchange rate pricing mechanism. Fourthly, the domestic capital market (banks, securities, insurance, funds, and equity investment), as long as it is well-managed, should be further opened to foreign capital. Fifthly, the legal system for domestic and international trade, investment and capital flow should be improved and made compatible with the main legal frameworks of other countries in order to reduce institutional barriers to RMB internationalization.

6.4 The Global Monetary Pattern and the Forming of the Chinese Yuan System In the next three decades, a significant change will take place in the global economic pattern in terms of the relative economic strengths of various countries, the industrial division of labor, and modes of development. The internationalization of the RMB may lead to the formation a Chinese yuan system covering the Chinese mainland, Taiwan, Hong Kong, and Macau that will change the global monetary order and pattern. In fact, when considering China’s future monetary strategy, we need not only to make a prognosis about the world situation in the next three decades, but also to pay special attention to the prospects of the development of China itself, its neighboring

6.4 The Global Monetary Pattern and the Forming of the Chinese Yuan System

97

countries and the East Asia Free Trade Area. In particular, whether a real “Chinese economic area”13 can be formed in the Chinese language circle for monetary cooperation on the basis of free trade economies is an issue worth looking into. Regarding the development of a unified Chinese economic area, we should first consider how to integrate the four currencies in China—the RMB, the Hong Kong dollar, the New Taiwan Dollar, and the Macanese pataca, all of which are circulating in the Chinese economic system due to historical reasons. Thanks to years of accumulation from inter-regional trade, negotiations, and arrangements between the relevant monetary systems, and regional geopolitical processes, the RMB has formed a relatively large deposit in Hong Kong, which is likely to continue to grow. However, US dollar deposit still comprises a proportion of about 35%.14 Negotiations for cooperation in RMB business in Taiwan are also in steady progress. Before 1999, 52% of Macau’s broad money M2 consisted of the Hong Kong dollar, the pataca only accounting for 32%15 ; by 2010, the HK dollar comprised a proportion of 59.1%, still higher than that of the pataca.16 At present, the RMB has a controlled floating exchange rate based on a currency basket, the HK dollar has an exchange rate pegged to the US dollar, the New Taiwan Dollar has a totally free-floating exchange rate, and the pataca is pegged to the HK dollar. In the future, trade and economic cooperation is bound to keep expanding in scale and range. Deep monetary cooperation, or even unification, in the four regions would significantly save exchange and settlement costs in goods and services trade and even financial business, benefiting the development of each region and the overall progress of the Chinese economic area. As for whether a country or region will choose to join a neighboring currency area, a commonly used analytical framework is the GG-LL model proposed by Paul R. Krugman and other economists. In the framework of this model, a country or region will analyze the benefits and costs of its joining the currency area and actually join it when the beneficial effect is positive after the realization of monetary integration. Specifically speaking, it will not join an existing currency area unless it can gain greater benefits in terms of the saving of transaction and foreign exchange reserve costs, the increase of its regional competitiveness, and economic development despite the price it pays by relinquishing seigniorage, monetary sovereignty, and a monetary policy for balancing domestic and foreign economy. Based on the foregoing analysis of the reality in the Chinese economic area and relevant theoretical analysis, we would like to propose an approach to monetary unification in the Greater China Region: 13 The term was first used in an official report jointly issued by the IMF and the World Bank to refer to an integrated unit of analysis comprising the Chinese mainland, Hong Kong, Taiwan, and Macau, as cited by Liu Lizhen et al., p. 227. 14 Cao Yuanzheng. “The Role and Function of Hong Kong’s Financial Market in the RMB Internationalization Process”, in RMB Internationalization: Origin and Evolution [C]. 2011: 161–172. 15 Liu Lizhen et al., p. 245. 16 Qiu Lan et al. “An Empirical Analysis of the Hong Kong Dollar’s Circulation in Macau” [J], in Special Zone Economics, 2011 (10): 13–15.

98

6 China’s Development and the Future World Monetary System

Step 1; bring about the substitution of the HK dollar for the pataca; Step 2; combine the HK dollar area and the RMB area into a mainland-Hong Kong– Macau monetary area; Step 3, incorporate the New Taiwan Dollar into the Chinese mainland-Hong Kong– Macau monetary area. This approach is based on the following reasons: First, in view of the current monetary system and state of monetary circulation in Macau, it is relatively easy to incorporate Macau into the HK dollar area, which can be accomplished first. Second, since Hong Kong is a free port and has a better-developed financial system than the Chinese mainland, it is still somewhat difficult to replace the HK dollar with the RMB, which is likely to be rejected as a non-freely convertible currency. Only if the RMB exchange rate has become more flexible and Hong Kong’s pegged exchange rate, which is equivalent to fixed exchange rate, poses a real barrier to Hong Kong’s development, will it be possible for it to accept the substitution of the RMB for the HK dollar. Third, due to political reasons, it will be most challenging to incorporate Taiwan into the Chinese currency area. The negotiations and political and judicial procedures involved will also be the most difficult. Fourth, as we have analyzed with the GG-LL model, only if Taiwan recognizes the benefits of mainland-Hong Kong–Macau currency area and if its economic reliance on the Chinese mainland has grown to a certain level will it join the Chinese currency area entirely of its own accord. That will be a currency area composed of the four regions and supervised by the central bank system, which is led by the People’s Bank of China. It will eventually become another emerging economy that carries the same weight as the Eurozone and the USA. Based on the formation of the Chinese currency area and in view of the current state of the RMB’s circulation and use in border trade with adjacent countries, China can be expected to develop a “Chinese yuan economic zone” within the Asian economic area. This process may unfold in three stages (including the main stage in the formation of the Chinese currency area): Stage 1, unify the Chinese mainland, Hong Kong and Macau into one currency area and rename the RMB as the Chinese yuan (huayuan). Based on the currency swap agreement for RMB regionalization that is being implemented, bring about bilateral settlement with the Chinese yuan in all the trade with adjacent countries (such as Russia, South Korea, and Mongolia) and ASEAN countries and free bilateral exchange between the Chinese yuan and the currencies of those countries. Stage 2, on the basis of Stage 1, attract Taiwan into the Chinese mainland-Hong Kong–Macau currency area, which it will join of its own accord, in order to form a broader Chinese yuan system. The Chinese currency area will have come into existence by then.

6.4 The Global Monetary Pattern and the Forming of the Chinese Yuan System

99

Stage 3, conduct bilateral coordination with Singapore to form an extended free trade zone. Develop an extended Chinese yuan system consisting of the Chinese mainland, Hong Kong, Macau, and Taiwan, with Singapore as a potential participant. By then, the RMB will have attained absolute dominance in Asia. Upon the formation of a pan-Chinese yuan system, the Chinese yuan will join the basket of trade-weighted currencies in the world economic pattern and further enhance its status in the global monetary system. The RMB is already highly accepted in bilateral border trade with such neighboring countries as Vietnam, Mongolia, Laos, and Myanmar. Besides, thanks to informal financial systems in border areas, it has also become quite popular in civil society. China’s currency swap agreements with neighboring countries and regions as well as major trade partners have also yielded satisfactory results, which have become the basis for a steady increase in the scope of influence and depth of cooperation. Therefore, it will be relatively easy to build the Chinese yuan system in Stage 1, which is very likely to be successful. Once Stage 1 is accomplished, the enormous economic potential will have a tremendous impact on Taiwan that is conducive to the achievement of the Stage 2 objectives. However, there remain a host of difficulties and barriers in transition from the RMB into the Chinese yuan area. RMB regionalization toward the neighboring countries has just started. Even in Hong Kong, its deposit has yet to reach the trillion level, far below the minimum standard for a real offshore RMB center. Therefore, it will still take some time for the RMB to expand to neighboring regions. Apart from the enormous amounts of manpower, money and time needed for coordination and negotiation, geopolitical tension, Japan’s reluctance to yield, and possible intervention by the USA or other foreign forces will bring significant uncertainties and can even directly impede the building of the Chinese yuan system. The above is an analysis about China and its neighboring countries and regions. As for the overall development of Asia, now that a Eurozone-based EU economic area has formed in Europe, is it possible to develop a corresponding currency system and economic area in Asia, especially Southeast Asia? At present, the largest-scale economic cooperation framework in the region is the China–ASEAN Free Trade Area. Officially formed on January 1, 2010, it consists of China and the ten ASEAN countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Cambodia, Laos, Myanmar, and Vietnam). It is the largest trade area composed of developing countries in the world. As the world’s third largest free trade area after the EU and North America FTAs, the China–ASEAN FTA covers a total population of nearly 1.9 billion, nearly a third of the world’s population, and represents about one ninth of the global GDP. Besides, it was the enormous success of the Chinese mainland’s efforts for the FTA that provided an indirect but forceful impetus to the signing of the Economic Cooperation Framework Agreement (EFCA) between the Chinese mainland and Taiwan on June 29, 2010. Another important cooperation mechanism in this region is ASEAN + China, Japan, and ROK (10 + 3). In recent years, the 10 + 3 mechanism, which is focused on economic cooperation, has gradually extended to political, security, and cultural areas, leading to a situation of multilevel, wide-ranging and all-dimensional dialogue

100

6 China’s Development and the Future World Monetary System

and cooperation. At present, the 10 + 3 has established 50-odd dialogue mechanisms on various levels in 18 areas, including 14 ministerial conferences regarding diplomacy, economy, finance, agriculture and forestry, labor, tourism, environment, culture, fight against transnational crimes, health care, energy, information and communications, social welfare and development, and innovation in governmental administration. In view of the existing cooperation frameworks and mechanisms in East Asia, a future East Asia Economic Area will at least include the ten ASEAN countries plus China, Japan, South Korea, and Mongolia. Apart from these, there will be two uncertain regions—the Russian Far East and North Korea. If the Russian Far East joins the East Asia Economic Area, given the fact that Russia is a Eurasian country, a series of problems may result from indistinct geographical demarcations regarding certain aspects of trade and investment, such as tariff reduction or exemption, and monetary settlement and transaction. Additionally, if Russia comes in, it will surely compete with China and Japan for dominance and the right to speak in the East Asia Economic Area, further complicating the rivalry between the regional powers. However, the current state of the Russian economy and the scale of the country’s trade and investment indicate a widening gap from China and Japan. Besides, due to its energy export-oriented mode of development, Russia is showing certain signs of the Dutch disease that reveal the vulnerability of its economy. These negative factors will impede Russia’s attempt to take a hand in the East Asia Economic Area and dominate it. Another uncertain region is North Korea, which is still a planned economy. It is utterly unable to join any form of regional economic cooperation framework because it is at odds with the rules and institutions of a regional FTA in all aspects—exchange rate, foreign exchange management, trade and investment system, the legal system, and so on. If it follows the example of Cuba and reforms its economic system, especially with regard to trade, investment and foreign exchange management, building a legal system in accord with the global economic system, North Korea should be admitted to the East Asia FTA, considering both its geographic location and the need for geoeconomic cooperation. However, the prospects have been made even more unpredictable by the sudden death of its supreme leader, who is now succeeded by his son. In “Monetary Competition in East Asian Monetary Cooperation,” Chen Yulu notes that monetary competition mainly depends on the following factors: economic strength of the issuing country; comparative advantages in manufacturing; sophistication of the financial system; stability of monetary value, and scale of the transaction network.17 At present, no currency has absolute dominance in East Asia. There is a close race between the RMB and the yen, and the US dollar still enjoys a certain degree of ascendancy due to historical and other reasons. Therefore, there is not yet any absolutely dominant force that can accomplish the integration process very soon. If the future trend toward an East Asia Economic Area is considered on a historical scale, there are two problems that may take a very long time to solve: 17 As

cited by Liu Lizhen et al., p. 235.

6.4 The Global Monetary Pattern and the Forming of the Chinese Yuan System

101

First, there exist multifold bargaining among great powers in the region—whether the ASEAN will accept the leading role of China, Japan, or other countries, and the rivalry between China, Japan, and other nations. It is true that a country may attain a certain degree of natural dominance when its economy and currency have a strong presence in an economic area. However, each of these countries—China, Japan, and even the USA—wants exclusive dominance in the Asian economic area. Competition will ensue, and the winner will not appear until the end of a long struggle. Second, geographic tensions and territorial disputes on the land or the sea are difficult to resolve. For instance, due to the South China Sea’s abundance in oil and natural gas, neighboring countries, especially Vietnam and the Philippines, have frequently laid territorial claims to the area and had frictions with China. Such geopolitical tensions will impede the process of economic cooperation and make it unlikely to form an Asian currency area in the near future. That might eventually become reality, however, if Asia’s economic and geopolitical situation develops toward cooperative development, Japan’s competitiveness declines relatively as its economic gap from the Chinese currency area widens, the South China Sea disputes are settled, and the USA finds it unable to maintain its dominance in Asia. All these might happen—but at least after 2050. However, though an Asian currency is unlikely to emerge in the near or medium future, there remain promising prospects for cooperation in free trade and investment in East Asia. Countries and regions in East Asia may form mechanisms for bilateral cooperation or limited-scope multilateral cooperation in trade, investment and aspects of capital flow, such as monetary transaction, settlement, and reserve. These will to some degree ease the problem of currency mismatch shared by East Asian countries, weaken the US dollar’s supremacy in the Asian monetary system and, on the basis of these, help to develop a quasi-Asian currency economic area featuring several major regional currencies as the leading media of transaction.

Part IV

China and the US in the 21st Century: Relations and Geopolitical Strategy

In the second half of the 19th century, when the UK, known as the Empire on Which the Sun Never Sets, was still intoxicated by the glory of its industrialization and colonial expansion, the USA was rising on the other side of the Atlantic. After the Great Depression in the 1930s, the economic and arms race with the Soviet Union in the mid-20th century, and the subsequent economic competition with Japan, the USA became the world’s richest and strongest nation thanks to its dynamic institutions and advanced technology as well as the status of the US dollar as a global currency. By the late 20th century, it had come to play a leading and dominant role in global economy and politics. Toward the end of the first decade of the 21st century, a major turning point appeared when, on the west side of the Pacific, China replaced Japan as the country with the world’s second largest GDP thanks to its reform and opening policy and export-oriented industrialization strategy. This heralds the rise and revival of the Chinese nation, which comprises one-fifth of the world’s population, in the new century—probably a great trend that no one can resist. The USA is a capitalist country featuring bipartisan politics and a mainstream belief in Christianity, independence, and free competition. China is a socialist country marked by a one-party government and the advocacy of centralism and collectivism, with communist party members not allowed to believe in any religion and religious freedom for non-party members (the majority of the believers follow Buddhism or Taoism). There is a concern shared by all countries in the world, including China and the USA: In the 21st century, can these two countries coexist peacefully despite their differences in ideology, social system, political system, religion, cultural tradition, and incentives? Will there be a major and disastrous conflict that might even endanger the whole world? As the world’s two strongest nations in this century, can they bring about a situation in which worldwide balance, peace, and development can be maintained? Can China and the USA make international rules, create a new and better-regulated order, build a new international structure for political and economic governance, prevent damages to the global ecological environment and the loss of resource-related sustainability, bridge the income gap, and maintain peace and security around the world through mutual consultation and joint leadership?

104

Part IV: China and the US in the 21st Century: Relations …

In the 21st century, China-USA relations will be the most important factor in the patterns and changes of the world’s political and economic situation. However, in this century, the world will also be a multipolar one. Apart from the USA, China has to deal with other countries in the world. These are the issues to be addressed through an objective and in-depth discussion in this part.

Chapter 7

China and the USA in the Twenty-First Century: Conflicting Interest and Strategic Choice

7.1 Future Conflict of Interests Between China and the USA: Judgment and Summary In the twenty-first century, due to their differences in development stage, cultural tradition, values, and historical glories and disgraces, there are divergences, if not conflicts, between the national interests of China and the USA despite their common interests in peace and development.

7.1.1 A Summary of Future Conflicts In view of the national interests of the USA as expressed by its government and scholars in recent years and China’s due national interests in its course of development, there will be the following conflicts, in order or importance.

7.1.1.1

Conflict in Leadership

Due to the difference in population size as well as the ebb and flow of global influence determined by the economic aggregate, the US national interests regarding global leadership are bound to be affected by the rise of China, though the latter may have no interest in obtaining such leadership in the future. In fact, in the US academia, political circles and civil society, many of the discussions about the rise of China in terms of political (including values), cultural, religious, cultural, and military aspects are related to a persistent sense of superiority. Concerns about the possible loss of such leadership are the ideological origin of the criticisms about the “threat” of China and a series of adjustment in the USA’s strategy toward China.

© Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_7

105

106

7.1.1.2

7 China and the USA in the Twenty-First Century: Conflicting Interest …

Conflict in Territorial and National Security Interests

In terms of territory and national security, the South China Sea, the Diaoyu Islands, the stability of Tibet and Xinjiang, the eventual reunification of the Chinese mainland and Taiwan, and the development of resources and transport security in the East China Sea, the Yellow Sea and the South China Sea are part of China’s essential interests, which have no room for compromise or concession. From a practical perspective, China poses no security threat to the US territory and never engages in any separatist activity against it. In China’s opinion, it has no direct or indirect interests to gain from any interference with the territorial land, air space or waters of that distant country on the other side of the Pacific Ocean, or any attempt to split it. On its part, the USA has two strategic ways to challenge China’s essential interests: firstly, direct military clashes with China; secondly, indirect damage to China’s core interests via a third country or even a third country group. In terms of its posture, the USA has shifted its strategic focus to the Asia–Pacific region in the past couple of years, building up its military presence, staging frequent military exercises in the South China Sea, the Yellow Sea, and the East China Sea, selling weapons to China’s neighbors, and sending ambiguous or misleading signals to the Philippines and other countries. All these are obvious signs of the USA’s attacks on China’s core interests without provocation, which will be the principal conflict affecting China–US relations in the next one or two decades.

7.1.1.3

Conflict in Monetary and Employment Interests Amid Economic Development

Conflict of interests regarding economic development and stability is mainly reflected in two aspects—currency and employment. First: conflict in monetary interests. In the future, China can obtain maximum increase in its national interests at minimum costs through the internationalization of the RMB, forming a global monetary system comprising the US dollar, the RMB and the euro, or even a bipolar system dominated by the US dollar and the RMB. If so, China will gain and share great benefits from the internationalization of its national currency. With the decline in the US dollar’s dominance, the profits mainly reaped by the USA, such as gains from exchange rate fluctuations, low financing costs, seignior age and proactive influence on other countries’ fiscal and monetary policies, will be substantively redistributed by the internationalization of the RMB. Second: development and employment-related interests. The change in the relative sizes of the Chinese and the US economies is an inevitable trend. However, the US approach to stabilizing economic growth and boosting employment is to implement the “reindustrialization” strategy, revive the manufacturing industry, and compete with China in trade. Besides, it tries to expel as many Chinese products as possible from the US market through anti-dumping duty and non-tariff barriers, and engage in fierce competition with Chinese products on the international market.

7.1 Future Conflict of Interests Between China and the USA …

7.1.1.4

107

Conflict in the Use of Outer Space

Far-reaching and enormous economic and military interests are involved in outer space systems of satellites, spacecraft and space stations, which are combined with the latest information technology. Whoever has superiority in technology, system and scale will occupy a commanding height in development and future wars. For this reason, the USA is highly sensitive to every move of China for development in outer space, regarding it as an opponent’s act of competition. As a result, conflict of interests in outer space may emerge between China and the USA in a wide range of fields including satellites, spacecraft, space stations, transport, information transmission, and integrated control, regarding technological competition, development in quantity and scale, and the capability of interfering with, attacking or destroying the opponent’s outer space facilities.

7.1.1.5

Conflict in Resource Utilization and Redistribution

With a population of 1.4 billion, China is bound to consume enormous amounts of resources for raising its per capita GDP. This will lead to a certain degree of redistribution of global resources through international division of labor and trade. In this connection, there will emerge systems for the secure storage and transport of resources for China’s development. The 310 million American are consuming a quarter of the world’s limited resources. However, China will be playing a more prominent role in redistributing those limited resources around the world. This will no doubt lead to economic and military rivalry between China and the USA in terms of investment and trade in resources as well as channels for their storage and transport.

7.1.1.6

Conflict in Environmental Capacity and Impact

China’s future economic development is bound to redistribute the world’s environmental capacity, including that of outer space, forming a certain level of externality. At present, there is a relatively high level of per capita emission and consumption in the USA. However, China’s environmental demands will also be growing in intensity. With the acceleration of China’s modernization, the consequent negative externality will inevitably have an increasing impact on the USA’s interests. Therefore, the conflict of environmental interests between the two countries, which is now not quite serious, will intensify in the next three decades.

7.1.1.7

Conflict in Values and Civilization

Apart from the short-term and long-term conflicts due to the ebb and flow of development, there are also “subjective” conflicts in values, culture and political system—so-called conflict of interests deliberately created because of dislike.

108

7 China and the USA in the Twenty-First Century: Conflicting Interest …

First, in the West and among the few “camps” that remain, the era has passed when fierce conflicts and wars could result from ideological differences. The current trend is one towards practical interests and acts to draw upon each other’s strengths. Second, though some countries try to make a big issue of the “clash of civilizations,” the evolution of human civilization is essentially a history of incessant fusion and integration of different and scattered civilizations. Globalization and the amalgamation of civilizations are a worldwide trend that no one can resist. Third, regarding political systems, fairness, justice, democracy, and the rule of law have become a worldwide trend. Countries are experiencing a steady progress in democracy and constant political reforms. One country’s political system does not seem to involve any part of another country’s interests, and vice versa. In this respect, therefore, there should be no pretext for creating conflicts between two countries with different political systems. In the final analysis, such conflicts, if they exist at all, are simply ideological, cultural, and political excuses for and reflections of underlying conflicts in real interests.

7.1.2 Possible Future Conflicts Between China and the United States Over National Interests We may make a strategic deduction for China and the USA according to an analytical framework that consists of the following: their respective national interests—potential conflicts between their national interests–actions that can be taken in view of such conflicts—the costs of various actions—options in strategic negotiations devised according to the costs, benefits and risks of actions. First of all, we shall arrange the various aspects of the two countries’ national interests in order of intensity and the degree of conflict (Table 7.1). According to the foregoing analysis, since the USA regards global leadership as its vital national interest, fearing that it might be taken over by a rising China, containing China’s development and preventing its peaceful rise have become an important twenty-first century international relations strategy of the USA. In the recent few years, Washington has shifted its strategic focus from the Middle East to the Asia–Pacific region. It has formed an encirclement of China by staging military exercises with Japan and the Philippines in relation to the Diaoyu Islands and the South China Sea issues and ratcheting up diplomatic engagement with China’s neighboring countries. From the game-theoretic perspective, the insecurity, or even turbulence and disintegration, of either China or the USA would contribute to the consolidation and rise of the other country’s status. For this reason, the USA’s national interests regarding the maintenance of its global leadership are analyzed in association with the respective security interests of the two countries. In fact, it is the USA that regards global leadership, which has no appeal for China, as a national interest. However, now that

Not taking the lead

Core interests

Profiting from the trend

Ensuring employment

Currency

Employment

Leadership

Territorial security

Economic development

Redistributing resources

Redistributing capacity

Coexistence

Resource utilization

Environmental capacity

Subjective value

F Weak-

E Becoming strong

D Strong

Occupying a place C Strong+

Outer space

B Strong+

B Taking things as they come

A Strong+

G Weak-

What China Wants How much

Issues

C Helpless

B Strong+

A Strong+

How much

Sense of superiority

Maintaining the status quo

Maintaining the status quo

Hegemony

E Strong but declining

G Strong but declining

F Strong

D Strong+

Reindustrialization and C Strong+ creating more jobs

Decline in profits

Life-or-death interests

Ensuring leadership

What the USA Wants

Table 7.1 Conflicting interests between China and the USA: issues, possible actions, and order of intensity

D. Taken seriously by the USA at present, but likely to become less important in the future

F. Conflict is weak now but uncertain in the future

E. Conflict is weak now but uncertain in the future

C. 50% probability of a war in outer space

B. Trade protectionism and frictions will intensify

B. the USA spares no effort to reverse the trend; China takes action while keeping a low profile

A. China will not affect the USA; the US wants something to happen to China

A. the USA contains China; China seeks global governance

Actions and conflicts in order of intensity

7.1 Future Conflict of Interests Between China and the USA … 109

110

7 China and the USA in the Twenty-First Century: Conflicting Interest …

the USA sees China as a potential rival that might undermine its global leadership, its strategy and actions do have some impact on China’s national security. Another aspect of the conflict of national interests concerns the impact on employment from the global status of their currencies as well as international trade and investment. In this respect, China’s future development will indeed affect the USA. As a result, on the one hand, Washington has accused Beijing of manipulating the exchange rate and will create frequent trade frictions against China’s export-oriented manufacturing. On the other hand, the USA will intensify technological innovation, promote “reindustrialization,” and revive its manufacturing industry in order to maintain the US dollar’s global status, reduce its unemployment rate and become more competitive against China. High technology is essential to modern warfare. Besides, the development of satellite information systems in outer space and their operational superiority will to a large extent determine the outcome of a future war. As a result, research and investment in the development of outer space equipment such as satellites, space stations, and manned spacecraft as well as the capability of destroying another country’s outer space facilities has become a crucial arena of competition. Due to the importance of outer space commanding heights for information, which would do no direct harm to people on the earth, there is a high probability—about 50%—of reciprocal attacks. China and the USA also have their respective national interests regarding energy, other resources, and the ecological environment. However, conflict of interests in this respect may be significantly relieved or prevented by technological progress, which can generate more ways of conservation and substitution, by trade, which will lead to fair division of labor and distribution, and by growing environmental awareness, regulation by tax and other means, and constantly emerging technical improvements. In terms of ideology and values, fundamentalist capitalism is actually no longer existent in the USA; for China, the economic and social progress in the past three decades since the beginning of reform and opening up has also made it impossible to revert to extreme communism or the traditional social system. It is true that China’s ideology is still used as an excuse in the US presidential campaigns and for Washington’s attempts to encircle Beijing. In fact, however, the capitalist the USA and the socialist China share a great deal of common ground in terms of respect for property rights, competition, efficiency, social security, the well-being of the people, public services, and the narrowing of gaps. The twentieth century pitched battle between the capitalist and socialist camps, ideological or otherwise, will not recur in the twenty-first century. It should be noted that, between China and the USA, the pursuit of their respective national interests will lead to interest-related bargains. Will these be non-cooperative or cooperative games? The cost, price, and gains will be different for the two sides. In a non-cooperative game, the benefits for either side will be lower than the cost and price it pays. Though bargains and negotiations are inevitable due to the difference in interests, cooperative games between the two countries will maximize the national interests of both.

7.2 The National Interest-Based Strategies and Actions of China and the USA

111

7.2 The National Interest-Based Strategies and Actions of China and the USA This section will be an in-depth discussion of the strategies and actions that should be adopted by China and the USA in the face of conflicts of national interests, without consideration of the spending, costs, and returns that are involved in the absence of coordination.

7.2.1 The US: Vying with China for Future Global Leadership In fact, since the collapse of the Soviet Union in the late twentieth century, preventing the rise of China has been one of the USA’s strategic priorities. In other words, Washington’s next target is China. However, the terrorist attacks that took place on the US soil on September 11, 2001, changed the USA’s strategic goals. In the first decade of the twenty-first century, the USA made it a strategic priority to fight against religious extremism and terrorism. This, plus the Middle East’s status as a global oil supplier and the need to stop the revival of Russia, has made it necessary for the USA to place its strategic focus in West Asia, the Middle East, Central Asia, and Eastern Europe. The killing of Osama bin Laden in Pakistan by the US special troops in early May 2011 marked a milestone victory in the USA’s fight against religious extremism and terrorism, the threat of which to its security and national interests has been relegated to secondary importance since. In view of the USA’s strategy for guaranteeing its global leadership in the twenty-first century, it will take the following actions toward China.

7.2.1.1

Operable Strategic Plans and Actions Against the Rise of China

In view of the changes in the global political landscape, the USA has shifted the strategic priority of its national interests to the containment of China’s rise in order to ensure its global leadership in the twenty-first century. Since the end of the first decade of this century, with the decline of terrorism, the USA has made significant modifications to its strategic orientation: First, it has moved its strategic focus from Central Asia, West Asia, the Middle East, and Eastern Europe (especially the Middle East) toward the Asia–Pacific region, involving its military forces, diplomatic priorities, and economic cooperation. Second, direct confrontation with China has given way to the “smart power” of playing some Asian countries against others. Washington has forged military alliances, conducted military trade, and staged joint military exercises with East Asian countries that have territorial disputes or other kinds of tension with China, such as the Philippines, Japan, India, and Vietnam. Taking an ambivalent attitude

112

7 China and the USA in the Twenty-First Century: Conflicting Interest …

toward the South China Sea issue, it secretly supports anti-Chinese elements and provokes conflicts and disputes in order to make incessant trouble that might disrupt the rise of China. Third, through diplomatic, military, and economic efforts, the USA has formed a geopolitical encirclement of China composed of China’s neighboring countries— Afghanistan, India, Myanmar, Vietnam, the Philippines, Japan, and South Korea. Fourth, it has re-increased and redeployed military forces in West Pacific. US military presence in Asia–Pacific consists of three lines: the island chain (the base groups in Northeast Asia Southeast Asia); the monitoring points and transfer stations (the base groups in Guam and Australia); the command center and outpost for homeland defense (the base groups in Hawaii and Alaska). the US prompt strike and preemptive strike missile systems, space strategy and expanding military network in Asia–Pacific are primarily targeted at the rising China and secondarily at Russia. Fifth, it has attempted to undermine China’s role and form a US-led Asia–Pacific economic partnership system. In November 2009, President Obama announced that the US would join the Trans-Pacific Partnership (TPP). In March 2010, the USA, Australia, Vietnam, and Peru announced their participation in the TPP negotiations. Despite its vision of an East Asian community, Japan also expressed the intention to join the talks. As a result, the USA and Japan are trying to create a pattern of economic cooperation in Asia–Pacific that is led by the former and supported by the latter in order to undermine China’s influence.

7.2.1.2

Strategic Plans and Actions Based on Hopes for China’s Internal Upheavals

The Soviet Union, which used to be the leader of the socialist camp, collapsed in December 1991 under the combined onslaught of institutional ossification, ethnic issues, the failed reform, derelict leadership, the arms race, political corruption, and external intervention. Its demise created yet another precedent of the disintegration of a great power. Freed from the confrontation with the other superpower, the USA entered into a US-led global diplomatic, military and political pattern. Therefore, if China has ethnic, economic or political troubles, if it is bogged down in the mire, or if it breaks up, that will be the least costly and most profitable way to eliminate a potential rival and maintain the USA’s global leadership in the twenty-first century. What problems are likely to emerge in China in the next three decades? In what respects does the USA want China to have internal troubles? Economic risks and crises: Firstly, debt crisis and the collapse of the banking and monetary systems. Due to the common practice of developing economy with borrowed money among various levels of government and the central government’s inability to control the scale of loaning, many debts have formed enormous quantities of non-performing assets in banks. Besides, shadow banking and off-balance sheet activities (OBSA) also involve considerable risks. Local risks caused by private lending are often resolved by the central bank’s re-loaning so that the risks are

7.2 The National Interest-Based Strategies and Actions of China and the USA

113

transferred into the banking system. Once accumulated to a certain level, the problems may flare up and cause a total collapse of China’s monetary system. Secondly, the crisis of a wide gap in social security funds. Since China did not adopt a modern social security system after 1949, what should have been used as social security funds for workers was spent on the construction of roads and factories. Not until the mid-1990s did China take the first tentative steps to develop social security, and it was not until the early twenty-first century that China formed a rudimentary social security system that is only centralized on the local level, with big disparities between urban and rural areas. However, the Chinese population is aging rapidly, with enormous flows nationwide and between urban and rural areas, yet the current social security model essentially requires the younger generation to feed the older one. Considering inflation and the unification of urban and rural social security services in the future, an immense shortfall in funding may emerge in China’s social security system, which may cause a serious fiscal and financial crisis. Thirdly, rapid population aging and the loss of economic vitality would deprive China of its competitiveness in the global economy. Such competitiveness may be gradually lost due to rapid aging in the population structure, surging costs of old-age support and health care, and a dramatic decline in the proportion of working people. Fourthly, premature “deindustrialization” would lead to the hollowing-out of industries too soon. All developed countries have experienced a “deindustrialization” process, which is marked by the hollowing out of the manufacturing industry. In the past couple of years, Chinese private entrepreneurs have been concerned about the appreciation of the RMB, the rise in labor cost, heavy tax burden, and the difficulty and excessively high costs of taking out loans. Besides, negative publicity and immoderate efforts to crack down on organized crimes have caused many private entrepreneurs to fear that their properties might be “re-nationalized,” which has compelled them to transfer assets in various ways: (1) Companies have shifted from manufacturing to real estate, and then to usury; (2) entrepreneurs have shut down their manufacturing businesses and transferred assets to the USA, Australia, Canada, or other countries; (3) branches of the manufacturing industry are moving toward South Asia, Africa and Latin the USA. If this trend cannot be reversed, China is bound to face a situation in which “deindustrialization” has started on a large scale when the industrialization process has yet to be completed. Social risks and crises: Issues related to employment, housing and the income distribution gap will also be challenges in the next decade. These have been discussed in the introduction, hence no need for elaboration here. Political risks and crises: The hidden institutional risk of separatism: This is an enormous potential political risk that has not received any attention at all. Regarding the relationship between the central government and local governments: Firstly, certain powers that are centralized and never granted to local authorities in a federal state are shared by the central government and local governments in China.

114

7 China and the USA in the Twenty-First Century: Conflicting Interest …

For instance, regarding military affairs, a local party secretary is also the political commissar of the local armed police force; a local government has a foreign affairs office for diplomacy and a security bureau for intelligence. Social security, which should be controlled by the central government in a modern state, is managed by local governments.1 Secondly, in the three-tier structure of the central government, provinces, and cities or counties, the provincial level is characterized by demographic and economic growth and the vastness of administrative areas, whereas cities and counties have limited authority, weak financial capacity, and a very heavy reliance on provincial governments. Thirdly, some powers for the management of administrative, economic and social affairs, which should be exercised by city or county governments, are centralized at the central or provincial level. In other words, the central government has failed to centralize certain powers, but controls many things that should not fall into its purview. Seeds of separatism are being germinated, fostered, and hidden in the current political system and mechanisms. In a family, if the grandparents have moderate strength, the parents are very strong and the children are weak, it is very likely that the second generation will leave and form their separate families. Similarly, it seems that many large provinces have developed a structure of political powers that enables them to become independent of the central government at any time.2 The risk of political and social unrest during leadership changes: Some socialist countries have reformed the process for the replacement of their top leaders. Great progress has been made in some, while there remains ample room for improvement in others. In terms of institutional design, the replacement of top leaders in China and Vietnam follows a more advanced procedure than North Korea’s hereditary regime and the Cuban leaders practice of ruling for the rest of their lives. In either socialist or capitalist countries, the age of charismatic leaders hailed as national heroes has passed. At present or in the future, regardless of how a country selects its leader, there is and will be various degrees of competition between the candidates. How to ensure a fair and stable competition without the employment of any aberrant means, how to make the victor acceptable to the people, how to make the losers concede defeat peacefully, and how to prevent the political activities for the replacement of top leaders from having a significant impact on social stability—these are admittedly 1 The

central government’s management of essential components of social security, including pension and health care, can increase the people’s sense of identity and belonging as the country’s citizens. Besides, the nationwide mobility of labor demands relatively equal social security across the country. In contrast, the independent management of social security by local governments will significantly reduce such sense of identity and pose a tremendous threat by attracting people’s support when a region seeks to secede by referendum. 2 It should be noted that some of the communist party leaders of the Soviet Union’s republics and autonomous regions did not play an inactive role in its collapse, which was first and foremost a result of the opinions and actions of these people. This shows that there exist very high risks of secession in the approach to political governance that involves the control of each region by party leaders, who are in turn controlled by the party’s central committee.

7.2 The National Interest-Based Strategies and Actions of China and the USA

115

difficult challenges facing the socialist political system. In my opinion, the occurrence of political and social unrest and turmoil, or even the disintegration of the state,3 during the replacement of China’s top leaders, would be a strategic outcome with the maximum benefit at the minimum cost that can be expected by the USA.4 The risk of corruption: Social unrest and government changes in many countries are related to the people’s opposition to corruption. A corrupt leadership will lose the people’s sincere support and face the risk of being replaced. The ensuing political crisis will lead to social turmoil. The collapse of the Soviet Union had much to do with the corruption of the Russian communist party, which had lost the people’s support during its 71-year-long rule. It is true that the governments of the Soviet Union and some Middle Eastern countries had internal anti-corruption agencies that carried out large-scale purging campaigns. However, such internal struggle only spawned more rampant corruption.5 Can we find and follow a more effective way to fight corruption, break the vicious cycle, and genuinely restrain corruption in order to maintain the people’s support and social stability? Risks from ethnic and religious issues: Ethnic and religious affairs are highly complicated issues that the People’s Republic China has always tried to resolve ever since it was founded. Such issues contributed to the collapse of the Soviet Union, along with the aforementioned lack of a clear demarcation of powers and duties between the central government and local authorities, plus political and administrative corruption. In this respect, China may have shared more or less the same institutional problems with the Soviet Union, and still does. First, institutional designs like autonomous regions have strengthened ethnic characteristics while weakening the formation of a unified Chinese nation through inter-regional fusion over a long time. Second, the rigid ideology and values of Marxist materialism have long prevented religions from playing a positive role in the promotion of social harmony, creating de facto antagonism between believers, together with their religions, and the political system. In particular, more serious threats of unrest may arise from the high unemployment rate among ethnic minority college graduates and rural youth from Tibet

3 For

instance, between August 19 and 21, 1991, some dissenting party leaders staged a coup that forced Mikhail Gorbachev to resign, leading to the collapse of the Soviet Union. 4 As a member of the Communist Party of China, I firmly support the organizational guideline followed by the CPC congresses and the party’s central leadership and leading groups elected by them, as demanded by my full loyalty to the CPC Central Committee. History cannot be changed, and we must respect the results of the development of democracy within the Party at various stages. Here, from a purely academic perspective, I would like to express my hope that, in the future, the way in which the Party and state leaders are replaced can be further improved by the standard of a contemporary political system, eliminating the threat of unrest to the nation and the country that may arise from the replacement process and be taken advantage of by strategic rivals. 5 Examples of this abound in Chinese history. For instance, during the Ming Dynasty, Emperor Zhu Yuanzhang devised an elaborate anti-corruption system that featured a very harsh penal code within the imperial framework. However, this only led to endless and more widespread corruption. Even the anti-corruption institutions themselves became more and more corrupt and grew into a recalcitrant force with undue political influence.

116

7 China and the USA in the Twenty-First Century: Conflicting Interest …

and Xinjiang as well as the enormous gap in development, income distribution and wealth, which can be further complicated by ethnic mentality factors. The situation is improving. However, the relationship between religion and politics remains strained, and the inflexible rule that forbids CPC members to believe in any religion is still keeping the ruling party distant from hundreds of millions of believers. In fact, there has already been a certain degree of distrust in the communist party among these people. For the ruling party, this means the loss of support from a considerable portion of the masses. A simple and practical truth is that, if we do not unite with religion, our opponents will step in and integrate its resources and forces in order to develop a formidable advantage in their competition with us. The above analysis shows that we are facing numerous social, economic, political, ethnic, and religious challenges that threaten to erupt into crises. Ours is not a strong and stable modern state system. At present and in the future, without reform this country’s inside would be very fragile and rife with crisis-triggering risks. Incidents in any respect many escalate into widespread social unrest, government change, or even the disintegration of the country. For China’s strategic opponents, to control and defeat their target country by taking advantage of its economic crisis, political turmoil, ethnic tension, religious conflicts, social instability, and unrest would be a strategy for the maximum profit at the minimum cost. Supporting the formation of an opposition and leading the public opinion are means of external influence that can be chosen by any rival, forming an essential part of its “smart power” strategy. Therefore, as a scholar, I need to voice my concern that the greatest danger would come from responding to the evolving democracy by traditional, centralized means rather than learning to cope with complicated rivalry and influence from external political forces by the contemporary means for international political and institutional reform and construction. This may result in nothing but defeat.

7.2.1.3

Military Strategy Against the Rise of China

For the USA’s maintenance of its global leadership, the best option it can hope for would be the destruction of China’s industrial, infrastructural, national defense and other systems by military strikes before China could rise. However, a military strategy would involve many risks: Firstly, the USA has spent a great deal on the wars in Iraq and Afghanistan. Given its protracted economic downturn, it is doubtful whether it has the economic capacity for launching massive military strikes against China, which is much larger than the other two countries. Secondly, the conflict between China and the USA in North Korea ended with a draw despite the huge disparity in military strengths at the time. Thirdly, the threats from Germany and Japan are yet to be eliminated. The two countries’ industry and infrastructure were largely destroyed by the Allies during World War II. However, it seemed that economic revival on the rubbles was more favorable to innovation and development, inspiring greater zeal and unity among the

7.2 The National Interest-Based Strategies and Actions of China and the USA

117

people. As a result, since the end of the war, each of them has experienced a rapid economic growth and become one of the world’s strongest economies. However, the USA’s strategy for the military containment of China will not be discussed in detail here due to this book’s focus on economic analysis and the existence of a great deal of research into this issue. Due to the deepening of the economic relevance of China and the USA to each other, the high costs of a war against a great power, and latter’s economic downturn, it is unlikely for Washington to launch any military strike by land, sea or air against China. However, there do exist low-probability risks that, if improperly handled, might escalate into war between the two giants.

7.2.2 China: Ensuring Internal Stability and Never Taking the Lead It has been mentioned before that, to maintain its global leadership in the twenty-first century, the USA has come to regard China as almost the only potential challenger to that vital national interest. As a result, it has formulated a strategy in response to the rise of China and put it into practice. How should China make its response in both strategy and action? China’s development and revival in the twenty-first century will be an irresistible trend. However, China needs a strategic plan for how to take a proper position among all the countries amid its modernization process and after it becomes strong and prosperous. There are three options: firstly, replacing the USA as a global leader; secondly, being rich but indifferent to other countries’ issues and international affairs; thirdly, playing an active role in the development of democracy around the world, the formation of new international political rules and order, and the development of a new structure of democratic global governance. Regarding its international status in the twenty-first century, China should devise a fitting strategy for how to behave in the international community in order to avoid direct conflict with the USA and build a harmonious world, and in consideration of its national strength and the need for an international environment favorable to stable development.

7.2.2.1

Announcement to the World: Never Taking the Lead

China needs to announce to the whole world that it will never seek global leadership. In the late 1980s and early 1990s, Deng Xiaoping proposed the strategy for China’s behavior and position in the international community: “Observe calmly; secure our position; cope with affairs calmly; hide our capacities and bide our time; be good at maintaining a low profile; and never claim leadership.” He added, “China will always side with the Third World countries, but we shall never seek hegemony over

118

7 China and the USA in the Twenty-First Century: Conflicting Interest …

them or serve as their leader. Nevertheless, we cannot stay away from everything in international affairs; we have to make our contributions, but in what respects? I think we should help promote the establishment of a new international political and economic order. We do not fear anyone, but we should not give offence to anyone either. We should act in accordance with the Five Principles of Peaceful Coexistence and never deviate from them.” This strategy has a scientific, objective, historical, and long-term significance. Firstly, given the low level of its per capita wealth, China is unlikely to become a leading country with generally rich citizens within the foreseeable future. Though China is second only to the USA in economic aggregate, China’s per capita GDP in 2011 was only USD5514, which was equal to 11.4% of the US per capita GDP of USD48,387, ranking the 88th in the world. In the twenty-first century, China should still focus on raising the people’s living standard rather than spending more of its resources on contending for world leadership and building up the military strength required for doing so. Secondly, China has long suffered from the pattern of international politics featuring domination by a few major countries or struggle between two superpowers. Therefore, China should no longer follow the beaten path of striving for leadership at the expense of other countries. In the first half of the nineteenth century, Britain launched the Opium War against China. After that, the UK-led hegemonic powers encroached upon China and reduced it to a semi-colonial state. During the competition between the USA and the Soviet Union in the twentieth century, China faced the blockade by the US-led camp and also suffered at the hands of Russia, which forced China to cede Mongolia, confirmed the unequal treaties signed in the Tsarist era, and posed a formidable threat with a heavy military presence on the border. In the interim after the collapse of the Soviet Union, the USA, as the sole leader of the world, provoked frictions with China including the collision between its reconnaissance aircraft and a Chinese fighter. After the first decade in the twenty-first century, the USA shifted its strategic focus eastward in order to form an encirclement of China, which is rising and posing a potential threat to its leadership. China does not want to suffer; not does it wish to become a world leader and make other countries suffer. As a member of the global family, the Chinese nation does not want the future of the world to be plagued by a vicious cycle featuring the rise and fall of great powers that incessantly dispute and struggle against each other to the detriment of all the other countries. Thirdly, China is the world’s most populous country. If it manages to become one the world’s top 20 countries in terms of per capita wealth and have the capability of striving for global leadership, the whole world’s resources would be far from enough to satisfy China’s demands. If China makes it into the world’s top ten countries in per capita GDP and seeks world leadership, it would mean the doomsday for the global environment and resources. In two decades, China may rank at the top in the world in economic aggregate and the middle in people’s wealth.

7.2 The National Interest-Based Strategies and Actions of China and the USA

119

From any perspective, it is neither desirable nor necessary for China to try to become a world leader with limited economic strength.

7.2.2.2

Promoting the Process of Global Democratic Governance

Proposing, promoting, and developing an effective and democratic global governance structure involving all the countries in the world should be China’s explicit approach to the building of an international political order and an ideal that may require our long-term endeavor. It should be the theme for the strategic orientation, principle of action, tactics, and procedures in all of China’s international political relations. Regarding the various stages and actual efforts, however, China needs the following strategic roadmap: First, the mechanisms for dialogue and coordination between China and the USA and between China and Europe should be strengthened, and the efforts should be extended to the trilateral mechanism between China, the USA and Europe that may be formed in the future. Constant bilateral and trilateral dialogues can serve the following purposes: (A) preventing misjudgment of the other party’s intentions due to information asymmetry, which may lead to conflict; (B) explaining the purposes of diplomatic, economic, and military actions for mutual understanding; (C) preventing another party from taking advantage of the lack of dialogue between the three parties in order to estrange them from each other and damage their relations. In August 2005, the strategic dialogue between China and the USA was officially launched according to the consensus reached by their leaders. After that, the two sides exchanged opinions on China–US relations and significant regional and international issues of common interest. A strategic dialogue mechanism was also established between China and Europe. At each conference, the two sides had in-depth and sincere exchanges on a wide range of issues concerning the perception of each other’s development, China–Europe relations, and the international situation. Second, China should take an active part in the G20 dialogue and coordination mechanism, gradually increasing its range of functions.6 Based on the G8, the G20 includes emerging moderately developed and major developing countries. It is an organization for the resolution of major issues for all humanity by economic powers and populous countries as well as the replacement and diminishing of the USA’s global leadership. China should take an active part in it and help to strengthen and expand its role. Through multilateral consultation, the G20 summit promotes the reform of the IMF, the World Bank and other global financial institutions, enhancing the rights and voice of China and other emerging countries. For instance, during the G20 summit held on June 18 and 19, 2012, emerging economies including China decided on a significant increase of funding for the IMF (with USD 43 billion 6 The G20 is composed of the G8 (the United States, Japan, Germany, France, Britain, Italy, Canada

and Russia), eleven major emerging industrial countries (China, Argentina, Australia, Brazil, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea and Turkey), and the EU.

120

7 China and the USA in the Twenty-First Century: Conflicting Interest …

from China) and a redistribution of votes and quotas. This has enhanced the status of emerging economies and developing countries in multilateral global financial institutions and increased their influence on such institutions. Third, economic relations should be strengthened to forge bilateral and multilateral economic ties in which all the countries in the world are closely related, so that the outbreak of war can be prevented by the prospect of a global economic disaster. In particular, China should take an active part in regional mechanisms for dialogue, coordination, and cooperation. How did traditional wars break out? In a state of closed or semi-closed economies, military conflict serves to redistribute population, land, and resources. In contrast, worldwide economic connections and deepening globalization have offered the world a new way to distribute resources and gain benefits through the division of labor and market transactions. Therefore, strengthening economic ties is the most effective means of forestalling military clashes. In particular, developing geopolitical cooperation in economy and security with China’s neighboring countries can serve two purposes: (1) diminishing the geopolitical significance of the USA’s world leadership; (2) creating competition for balance with the USA’s pursuit of economic and political dominance in the Asia–Pacific region. The organizations of cooperation in economic security and other affairs currently participated in by China are: the China-ASEAN Free Trade Area (CAFTA), Shanghai Cooperation Organization (SCO),7 and the China–Japan–South Korea FTA (which is being established). From a strategic perspective, we should be aware of the territorial disputes between China and a few ASEAN countries, the historical bad blood between China and Japan, and Japan’s misgivings about the rise of China. As a result, in developing the CAFTA’s functions and the building of the China–Japan–South Korea FTA, China should separate politics from economy and forge geo-economic ties featuring mutual benefits and intertwined interests in order to bring about regional economic integration that can prevent political conflicts from escalating. One of the essential objectives of the SCO is to maintain regional security and stability and develop closer economic cooperation in order to offset the USA’s encirclement of China and create a favorable environment for China’s development. Fourth, in international relations and contacts, China should attach less importance to ideology, respect various countries’ different economic and political systems, and refrain from exporting ideology, political system, and revolution. Countries with different systems should learn from each other and improve themselves while competing peacefully. To be honest, some of the values we believe over the past 63 years since the founding of the PRC have not brought us tangible benefits in terms of economic growth or people’s well-being. In fact, extreme communism and the traditional and inflexible type of socialism have caused us to lose the competition with capitalism in terms of economy, science and technology, 7 In

2012, the SCO had the following members: China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan; the observer states: Mongolia, Iran, Pakistan, India and Afghanistan; dialogue partners: Belarus, Sri Lanka and Turkey; attending guests: the CIS, Turkmenistan and the ASEAN.

7.2 The National Interest-Based Strategies and Actions of China and the USA

121

and people’s living standard in the twentieth century. Besides, extreme communism has also wrought havoc on other countries. It is not unreasonable for the USA to list extreme communism together with Fascism among the major causes of the great disasters suffered by humanity in the twentieth century. Therefore, in the twenty-first century, the CPC needs to take a pragmatic attitude toward its values and philosophy and focus on developing productivity, raising people’s living standard, achieve common prosperity, and modernize the country. Over the past three decades, we have never ceased on reflect on the previous theory and system, draw upon other civilizations, and practice reform and opening up. We have abandoned the ossified traditional philosophy and system of socialism and developed a new economic system and a theory of socialism with Chinese characteristics based on Mao Zedong Thought, Deng Xiaoping Theory, the Three Represents, and the Scientific Outlook on Development. In my opinion, that is enough in both theory and practice; the theory of socialism with Chinese characteristics can guide us for the next 100, 200 or even 300 years. Fifth, China should promote the democratization process around the world as well as the reform and improvement of the UN and other organizations; it should promote a larger and more wide-ranging role in global governance played by global organizations including international judicial organs, the WTO, the World Bank, the IMF, and the World Economic and Environmental Conference. The jungle law still applies in the human society, which is plagued by strife and incessant wars between countries, each of them desiring maximum profits. This results in the gap between rich and poor countries, and the “tragedy of the commons” on a global scale. Coordination and cooperation are therefore needed to curb countries’ insatiable desires, grant them equal opportunity for development, eliminate poverty, and ensure humanity’s sustainable survival and development. In terms of global governance and the world order, we are facing a choice between separate governance or the gradual realization of joint governance, for a balance between national interests and the overall interests of humanity. Specifically speaking, we are seeking a balance between national sovereignty and behavior and global governance and order. Therefore, with China being unwilling to take the lead, the key to changing the pattern of global leadership by the USA alone or a few countries is to promote the process of democratic joint governance by all the countries in the world. In other words, decisions are to be made by many countries instead of one. Apart from the provisions in the UN Charter, change of the times has made it necessary to reform the UN conferences and the rules of procedure, and invest the UN with greater authority to manage world affairs. The UN’s organizations should be reformed to enhance their ability to enforce resolutions. Supervisory organs should be established within UN conferences for checking and overseeing the processes and results of the enforcement of resolutions. Besides, more international affairs should be entrusted to international organizations created and joined by various countries, which will discuss and resolve issues through democratic consultation and decision-making.

122

7 China and the USA in the Twenty-First Century: Conflicting Interest …

In summary, China’s strategic guideline for its future international status should be as follows: Firstly, even if it is well-developed in the future, China will never seek world leadership or engage in direct conflict with the USA regarding its global leadership. Secondly, attaching less importance to ideology, China will never export revolution or promote communism around the world; nor will it try to establish the CPC as a world leader of communism. Thirdly, in both attitude and action, China will not oppose the USA’s efforts to maintain its global leadership so long as they do no harm to its national interests. However, in the long run, a country’s global status depends on its economic strength. Therefore, the USA’s global leadership is bound to be weakened by its economic decline. On its part, China will focus on promoting the formation of a modern world civilization, i.e., the building of a new global structure and a new world political order featuring democratic consultation and joint governance by all the countries in the world.

7.2.3 Strategic Priority: Preventing Internal Upheavals and Ensuring Lasting Freedom from Decline To prevent the rise of China from affecting its global leadership, the USA has shifted its strategic focus to the Asia–Pacific for the encirclement of China and has forged various alliances targeted at China. More importantly, it will expect, wait for, and provoke upheavals in China, reversing the trend of its long-term development. Some scholars seem to cherish the illusion that there will be no conflict between China and the USA anymore once the former adopts the latter’s political and economic system. In fact, despite the capitalist system they shared, Britain and the USA strived with the gloves off for global leadership. Since the collapse of the Soviet Union, the USA has continued to regard Russia as one of its rivals despite the latter’s embrace of capitalism and democratization. Even if China adopted the USA’s political system, the US would still see the developing and rising China as a threat to its national interests. Regarding international relations, competition in national interests is much more important than ideological contention, which often serves as a glorified excuse for the former. However, I am not suggesting that our political system needs no reform, or that we do not have to draw upon the better parts of Western political systems. In fact, reform plays a vital role in guaranteeing China’s long-term social stability and national security. For a long time in the future, the key to China’s national security strategy is to prevent internal upheavals and ensuring lasting freedom from decline. In the previous chapter, I have analyzed several scenarios of upheavals in China. The national strategy as described above should consist of the following: First, full employment is a primary strategy for social stability and national security. A high employment rate should be elevated to the status of a paramount national

7.2 The National Interest-Based Strategies and Actions of China and the USA

123

strategy. The real unemployment rate should be surveyed, calculated, and publicized, and the GDP-based appraisal of principal local leaders should be replaced by employment-based assessment. More importantly, through deep-level institutional reforms concerning business registration, urban construction and management, and administrative examination, approval and annual check-up, the government should relieve the tax burden on entrepreneurs and small and microenterprises and grant them access to loans from urban and rural community banks, which will be vigorously developed, in order to combine the promotion of reform, the development of a favorable environment, the encouragement of entrepreneurship, and the creation of more jobs. Second, housing is a significant strategy for social equity and stability. The existing tensions have to be resolved by reforms. In particular, current land finance system, which features administrative distribution of land, quota control, transfer by auction to the highest bidder, and the once-and-for-all collection of the rent for 70 years, needs to be reformed. (1)

(2) (3)

(4)

(5)

An additional 250 million mu of land will be adequate for urbanization, transport, and irrigation constructions till 2040. Therefore, the “red line” of 1.8 billion mu of arable land (i.e., the principle that at least so much arable land must be retained) should be crossed. It will be only necessary to make 250 million mu available for construction out of the nearly 4 billion mu of unused land. The current land supply system, which is marked by tight administrative control and planned management, can then be abolished. The term of land use rights should be extended to 100 years for farmland, forest land, rural homestead, commercial housing, and company premises. The property right to land during the land use term should be acknowledged with a certificate, and land should be allowed to be inherited, transferred, leased, mortgaged, or incorporated. The existing practice of land requisitioning and the government’s monopolized sale of land by auction should be abolished. All land should enter the market for equal and fair transaction that is supervised by the government through land use planning for construction or other purposes. The land transfer fees should be abolished and replaced by value-added tax for land or property transaction and property tax in order to change the sources and channels of the government’s income from land and real estate.

These measures can serve to control land and property prices, increase farmers’ income, narrow the gap in wealth, and promote a sustainable fiscal system among local governments. The purpose is to prevent social turmoil that may result from housing shortage and the unfair distribution of wealth, which are in turn due to ill-designed institutions. Third, there is a need to build a fair but dynamic society. (1)

The urban–rural income gap should be bridged by gradual but resolute efforts for urbanization. The long-term strategy must be like this: Middle-aged and

124

(2)

(3)

7 China and the USA in the Twenty-First Century: Conflicting Interest …

elderly rural people will die over time, whereas young people will leave the countryside upon graduation from senior high school to find better-paid jobs in towns and cities. The structural income gap can only be gradually bridged with the elapse of time and through resolute actions for urbanization. Unlike their counterparts in Taiwan and South Korea, most farmers on the Chinese mainland cannot turn their farmland, forest land or homestead into assets that can be used as capital for entrepreneurship or partial payment for the purchase of urban housing. Therefore, the rural land system should be reformed so that farmers could gain due asset income in the urbanization process. Equal and liberal systems and policies for education and entrepreneurship are key to income equity and common prosperity. First, compulsory, equal and non-discriminatory education will enable children from families that differ in social status to have access to the same education and attain the same level of knowledge and intellect, ensuring fairness at the starting point of their life and career. Second, there is need for highly liberal institutions and policies for entrepreneurship and employment so that children from lower-class families can have an institutional environment and channel for upward mobility through personal endeavor. South Korea and Taiwan do not seek fairness with excessive welfare as some countries in Southern Europe do. However, they both have a low Gini coefficient and a competitive economy. In my opinion, this has much to do with their educational equality and liberal institutions and policies for entrepreneurship and employment. The tax lever should be made full use of for regulation and redistribution; the fiscal and taxation system and the state-owned, monopolized system of industry, commerce, and finance need to be reformed. The current system, in which low-income people have to pay taxes when buying property, must be abolished and replaced with property tax levied on property owners. This would serve to narrow the rich-poor divide and form a mechanism for regulating income distribution and wealth distribution. The proportion of direct taxes like property tax should be increased and that of indirect taxes on entrepreneurship and business operation decreased, in order to encourage people to work and start their own businesses, creating more wealth and distributing it at the same time.

However, the following efforts, which serve to form a modern social security system for families, will also be very important in the next ten to twenty years: The government will provide equal public services; a social security network for old-age support and health care will be formed; low-income urban and rural families will be provided with subsistence allowances and low-rent housing commensurate with their financial means; a transfer payment system will be established for rural areas, underdeveloped regions and low-income people; public welfare NGOs for charity and mutual assistance will be established. Since these have been studied by many scholars, there is no need for elaboration here. Fourth, internal upheavals should be prevented by progress in reform. Reform should not be regarded as something that might affect national security. In fact, the

7.2 The National Interest-Based Strategies and Actions of China and the USA

125

protection of national security must be combined with the furtherance of reform. National security means social peace and stability based on long-term economic development, adequate employment and housing, income rise, social security, satisfactory public services, and common prosperity. All these have to be promoted and achieved through reform in all aspects. That is to say, reform is a way to pursue lasting peace and order for the nation and the country. As a kind of innovation, reform is bound to trigger social tremors to various degrees. It is therefore necessary to properly deal with the relationship between the intensity of reform and the magnitude of social tremors, as well as that between short-term reform and long-term social stability. Though we need to prevent extreme shocks to society, we must forge ahead with the reform with unswerving resolution in order to avoid the dilemma of “inviting doom by reforming, or waiting for it by not reforming.” In conclusion, the more we advance toward modern institutional civilization, the lower the risk of internal upheaval will become, and the more secure our nation and country will be.

7.3 China’s Bargaining Strategy and Tactics Toward the USA For the time being, we will not consider what benefits the current strategic game between China and the USA will bring to the two countries at what cost. We shall only discuss the following question: in a game in which the USA has the initiative, what cards should Beijing play regarding its relations with Washington, apart from “never taking the lead” and preventing internal upheavals?

7.3.1 Another Battlefront: Economic Contests Though it is still a developing country with modest technological and military strength, China ranks the second in the world in economy size and trade volume. Besides, it is a mega-economy on the rise. Given such a status, China needs a combination of and interaction between economy and the political and military aspects of international relations in order to reduce adverse factors and gain maximum benefits for itself. In international relations, we normally emphasize the separation of economy from politics and military affairs. However, under special circumstances, there can also be economic warfare. In special bargains with the USA, China should make more frequent use of economic means in response to US political and military tactics against China. A mega-economy has the following special advantages:

126

7 China and the USA in the Twenty-First Century: Conflicting Interest …

Firstly, it represents a relatively high proportion in the global economy. Due to economic globalization, economies around the world rely heavily on the stimulating and supporting effects of mega-economies. Secondly, economic conflicts between a mega-economy and a small one, such as trade reduction and investment withdrawal, will do little harm to the former but severe damage to the latter. Thirdly, the currency of any mega-economy usually plays an important role in the world, enjoying monetary advantages in terms of low trade and financing costs, leadership in monetary policies, seignior age, and profits from exchange rate changes. Fourthly, in a bargain between one mega-economy and another one, if the former is on the rise with the position of a creditor, whereas the latter is on the decline with the position of a debtor, the former will have superiority over the latter. The economic strength of China and the USA may show the following trend: In the next five years, the USA will retain a position marked by the largest economy size, technological competitiveness, and superb military power; between 2016 and 2020, China will gradually catch up with the USA in economy size; between 2020 and 2040, China’s economy size will be on the rise while the USA’s will be on the decline; China will also make substantial progress in technological competitiveness and military strength in the next twenty years. Even if China grows very strong, it will not have any intention to fight a decisive war against the US. Therefore, regarding the dynamic relations between China and the USA in the next decade, the latter will be on the offensive in the political and military arena, but on the defensive in other respects due to its economic downturn, high debts, aggravating unemployment, and widening rich-poor divide. China will be on the defensive in political and military affairs, but it can be on the offensive thanks to the rising momentum of its economy. An economic war would cause more or less damage to both countries. However, it is bound to accelerate the fall of the US economy, which is already on the decline. In contrast, the upward trend of the Chinese economy will not be reversed by the temporary attrition. the USA is a high-income nation that provides higher social welfare to its citizens than China. As a result, an economic war is likely to cause a significant income drop in the US income and standards of living, triggering strong protest from them. However, thanks to its fast-growing economy, China would suffer less from an economic war; besides, due to the lower level of social welfare, Chinese citizens would be more capable of sustaining the impact than their US counterparts.

7.3.2 War Between the RMB and the US Dollar We have analyzed future conflict between China and the USA in monetary and economic interests. In fact, the rise of the Chinese economy and the growth of its monetary system, which is based on the increasing scale of economy, trade, and investment, will produce the greatest impact on the US national economic interests. If the two countries can coexist peacefully and cooperate, they may be able to prevent

7.3 China’s Bargaining Strategy and Tactics Toward the USA

127

their economic contests from inflicting a heavy damage on one or both of them. However, if one of them uses its political and military strength to threaten and contain the other, the latter will also retaliate by economic means despite its relative political and military weakness in order to offset it loss in strength and interests.

7.3.2.1

Decreasing USD’s Profit Margin Through RMB Internationalization

The currency of a small economy, even if it is internationalized, will be marginalized in reality due to its low share in the global economic system, which entails little interest of scale, and the inability to control the issuance of a world currency. In contrast, the internationalization of a mega-economy’s currency will be a different case: Supported by its large-scale monetary economy, it will dominate the issuance of a world currency. In the past few years, China has accelerated the internationalization of the RMB mainly through a more rapid establishment of offshore settlement centers, settlement with the national currency for bilateral investment and trade, Chinese banks’ “going out,” and the de facto circulation of the RMB in neighboring countries south of China. In my opinion, the USA’s subprime crisis, Europe’s sovereign debt crisis, the economic decline in Europe and the USA, and the weakening of the euro and the US dollar have created rare opportunities for RMB’s internationalization. The process should be further accelerated by the opening of the RMB’s capital account and the promotion of the RMB’s international convertibility on the basis of precautionary plans in response to external financial impact. In the long run, there is a need to develop an international RMB system commensurate with the growing scale of China’s future economy, investment and trade. The long-term trend of the Chinese economy and the US economy, as previously analyzed, shows that the RMB is bound to become one of the three major world currencies. If the USA attempts to encircle and contain China by political and military means, China will have full confidence in its capability of diminishing the USA’s global economic interests, thereby affecting its economic and social stability. There is no need to fear that the RMB’s internationalization might have a negative effect on us, for that will be far less significant than its impact on the USA, so long as we are good at playing the game of monetary economics.

7.3.2.2

Affecting the USA’s Economic and Social Stability by Manipulating the US Dollar Reserves and creditor’s Rights

In the past three decades since the advent of reform and opening up, China has developed an export-oriented development strategy. In particular, China’s industrial products, which are manufactured by its vast labor force, have been exported in exchange for an enormous quantity of foreign exchange reserves. By the end of June 2012, the balance of China’s foreign exchange reserves was USD 3.24 trillion. In

128

7 China and the USA in the Twenty-First Century: Conflicting Interest …

an article published inChina Finance, a journal run by the Chinese central bank, Yang Tao, a research fellow at the Chinese Academy of Social Sciences’ Institute of Finance and Banking, noted that US dollar assets accounted for nearly 70% of China’s foreign exchange reserves.8 This has been criticized by many scholars, who blame the government for hoarding the depreciating dollar at the expense of its cheap labor, resources and environment. In their opinion, there is simply no need to have such a large quantity of foreign exchange reserves, which may be exhausted in the next few years. However, in view of the current international situation, China can tolerate the losses from depreciation because its bargaining with the US call for such a large proportion of US dollar assets in its foreign exchange foreign exchange reserves. Regardless of pros and cons in other respects, in terms of international relations, China’s possession of an enormous amount of US dollars, plus dollar-priced creditors’ rights, has actually become China’s sharpest weapon in its bargains with the USA. Regarding China–US relations, there is a need for a group of experts and various plans for a currency war. The tactics for a currency war against the USA may include the following: Firstly, China may reduce the amount of US treasury bonds in its foreign exchange reserves and issue more RMB government bonds in combination with its bargains with the USA. When the USA faces a relatively serious debt situation and intensifies its efforts to contain and encircle China, the latter may unload more US treasury bonds and issue a greater amount of RMB government bonds toward other countries in order to limit the scope for the issuance of US treasury bonds; when its debt situation eases and stabilizes, more gentle actions can be taken. Secondly, if the USA intervenes in China’s military conflict with Japan, the Philippines or Vietnam in the East or South China Sea, China may dump massive amounts of US dollars, US treasury bonds, and other dollar-priced bonds in its foreign exchange reserves. This will accelerate the depreciation of the US dollar, which, coupled with the USA’s high debts, will aggravate the turmoil in its monetary and financial system and may even lead to the collapse of the US dollar and its financial system. Thirdly, China may increase its sovereignty funds which, in an emergency situation, can impact the US dollar and US treasury bonds on the international capital market, detonating its debt bomb, striking its monetary and financial system, and dealing a heavy blow on its economy. If China launches a currency war against the USA in response to its political and military challenges, what economic and social impact will it have on the latter? The consequences may include the following: Firstly, rapid depreciation of the currency and the collapse of the financial system, which will trigger an economic crisis. Secondly, rapid shrinking of American citizens’ wealth and widespread bankruptcy among the members of the middle class.

8 “US Assets Account for Nearly 70% of China’s foreign exchange Reserves”, IFENG.com, Finance

Column, June 21, 2011.

7.3 China’s Bargaining Strategy and Tactics Toward the USA

129

Thirdly, the impact will spread to manufacturing and the service industry, causing a significant decrease in jobs and a rapid rise in unemployment rate. Fourthly, debts will become unsustainable and citizens’ welfare will shrink or even terminate. Fifthly, reduction of tax revenue and financial retrenchment. The US economy will fall into a protracted downturn and decline more rapidly in contrast with the growth of the Chinese economy.

7.3.3 War in Investment, Trade, Regional Cooperation, and Technological Competition Apart from the currency war, cooperation and discrimination in trade, investment and regional economic relations are all parts of economic war.

7.3.3.1

Trade War

China has become the world’s second largest import and export trader. It has a vast market that is still growing and bound to become larger than any other market in the world—a market that is bringing and will bring tremendous trade benefits to many countries. This is one of China’s major comparative advantages in its foreign relations. In international relations, politics should not be separated from economy. Therefore, the situation cannot be allowed where some countries make money on the Chinese market while opposing China in political and military affairs. Regarding its trade relations with the USA, China can do the following: Firstly, compete with the USA’s major exported products through independent innovation, improving quality, standardization, and the maintenance of cost advantage. Secondly, for countries that follow in the footsteps of the USA in being hostile to China, reduce their export to China through non-tariff barriers like intellectual property rights and standards. For friendly countries, promote the sale of their products on the Chinese market. Thirdly, due to China’s large population with an increasing ability to pay for their education and rising living standard, there is now a rapid increase in the number of Chinese citizens who travel abroad for sightseeing or studies. For countries that follow in the footsteps of the USA in being hostile to China, China can guide its citizens away from them through tourist destination warnings, restrictions on export and passport, and rejection of diplomas awarded by these countries. On the other hand, China may encourage its citizens to travel to or study in friendly countries. Fourthly, regarding trade with the USA, devise a bargaining and negotiation strategy, and wage a trade war through anti-dumping and anti-subsidy measures, standards, and the control of entries and exits across the border.

130

7 China and the USA in the Twenty-First Century: Conflicting Interest …

In May 2012, when the Philippines provoked frictions with China regarding sovereignty over Huangyan Island, China impinged on its export of farm produces by imposing stricter inspection and quarantine measures on fruits and other goods imported from that country. In my opinion, this is a successful example of an economic war that was launched during a political and potentially military conflict on the strength of China’s advantage in the scale of its economy and market.9 It is true that China could also sustain certain losses in its export to the Philippines. However, in a trade war between a mega-economy and a very small one, the impact is almost negligible for the former but heavy, if not fatal, for the latter. In a trade war with another country, China needs to monopolize and protect its rare resources and import market. For instance, recently the state has taken rectifying measures towards the rare earth industry and imposed export quota on it while resolving to crack down on rare earth smuggling.10 As a result, rare earth has become one of China’s most powerful weapons for trade war. For the iron ore import market, China also needs to take corrective measures, make centralized procurement, increase its control over the import of iron ores, and hold down the price.

7.3.3.2

Investment War

In international relations, China also needs to learn how to fight an economic war through a skillful use of investment and other financial means. Investments related to vital sectors of the national economy, detrimental to the development to China’s industries, or from unfriendly countries should be restricted through administrative examination, access control, standards, and industrial injury investigation. On the other hand, such restrictions can be relaxed to an appropriate extent for investments from friendly countries. Investments abroad, especially those in countries hostile to China, should be restricted in terms of fund transfer, investment examination, and cross-border travels of relevant personnel. If the other party launches political or even military attacks on us, we may response with restrictions of cross-border travels, fund flows, and import and export, or economic sanctions.

7.3.3.3

Economic Cooperation and Contests

In international relations, there are no permanent friends, only permanent interests. A country can make friends by increasing their benefits, and deal blows to political and military opponents by causing losses to them. For friendly and neutral countries, instead of taking no actions because of the small size of their economy, China needs to engage in more favorable free trade and investment cooperation with them through 9 “China’s

Economic Sanctions Will Devastate the Philippines”, Beijing News, May 12, 2012.

10 Since rare earth smuggling would nullify China’s control over rare earth export, it must be cracked

down with the sternest criminal law. Anyone guilty of this crime should be severely punished and all his illegal gains should be confiscated.

7.3 China’s Bargaining Strategy and Tactics Toward the USA

131

proactive bilateral and multilateral measures in order to seize the initiative in international relations. Establishing free trade relations is an important part of economic contests between China and the USA. For instance, in order to “return” to the Asia– Pacific, the USA has signed a free trade agreement with South Korea and also joined and assumed leadership in the TPP, in response to China’s economic cooperation in the region through China + ASEAN and other mechanisms. However, it should be noted that economy, investment and trade will continue to grow in China, whereas they will show a trend of relative decline in the USA. On the basis on this, bilateral, multilateral and regional economic cooperation with China will bring enormous benefits to all the countries on its side; in contrast, the benefits they could gain from a close relationship with the USA will, in the long run, decrease relatively. Therefore, China must have confidence in its ability to win the global competition of regional economic cooperation.

7.3.3.4

Science and Technology War

As discussed before, China needs to implement an overtaking strategy in science and technology, In particular, in our games with the USA, progress in science and technology will to a large extent determine how much cost we have to pay, or even make the difference between victory and defeat; besides, it will give us the strength and qualifications for peaceful coexistence. We must be self-confident regarding our competition with the USA in science and technology. The Chinese nation is an intelligent one, as indicated by Chinese teenagers’ high scores in international math, physics, and chemistry contests, the number of Chinese scientists and engineers doing important work in various fields in the USA, and the speed of China’s progress in science and technology since the advent of reform and opening up. Since 1978, China’s excellent education and the sending of Chinese students abroad for further studies have enabled it to accumulate the world’s largest quantity of human resources. In big data computing, mobile communications, satellite positioning, strike from outer space, bioengineering, new materials and highspeed rail, China has made great progress and developed cutting-edge technologies. At present, in addition to the cost of manufacturing, China also has an advantage in the cost of technology development and application. Moreover, Chinese scientists and researchers are much more devoted to their work (always ready to work “five plus two” and “light plus darkness”11 ) than their counterparts in developed countries, who seldom work overtime. Therefore, China is bound to overtake other countries and prevail as a latecomer in the global competition of science and technology. As far as its bargains with the USA are concerned, China needs to give priority to the following areas of science and technology:

11 “Five plus two” means the five working days plus Saturday and Sunday, and “light plus darkness” means working day and night. We do not approve of working this way, but this is indeed a common occurrence in China.

132

7 China and the USA in the Twenty-First Century: Conflicting Interest …

Firstly, military technologies, especially those for space warfare, information warfare, naval warfare, and aerial warfare, which can enhance the overall capacity for defense and strike. These are for reinforcing the capability of coping with military conflicts once they break out. Secondly, energy technology for freedom from reliance on oil from the Persian Gulf and other regions, lowering the cost and price of new energy, safe production and consumption, pollution reduction, and freedom from reliance on other countries as well as the advantage the USA takes of it. Thirdly, information safety technology for resisting cyber attacks, stopping information leaks, and preventing military, administrative, and economic networks from being paralyzed. Fourthly, technology for enhancing China’s industrial competitiveness in new materials, new manufacturing processes, bioengineering, and aerospace capability, which will turn China into a major manufacturing country not only in size, but also in strength. Therefore, China needs to employ the “nationwide system” for concentrating its advantage in talent and resources on meeting the most difficult challenges in cuttingedge fields. Innovation systems should be formed on the national, regional, and industrial levels as well as in companies and institutions of higher learning. Intellectual properties related to independent innovation need to be protected, and restrictions should be imposed on the export of some independently developed technologies or their purchase by foreign capital. However, in its games with the USA, China will not have any political or military superiority in the next five to eight years. Apart from military defense, it can only gain a relatively favorable position on the strength of its economic advantage and through economic warfare. First, China needs to accelerate the reform of its financial system (including breaking up bank monopoly and liberalizing interest rates), limit domestic debt ratio to a reasonable level, and make plans in response to potential impact from foreign capital, in preparation for the internationalization of the RMB. Second, in an economic war with the USA, especially a war in currency or trade, China will also sustain some losses due to rapid RMB appreciation and a slump in export. It is therefore necessary to make a plan that can minimize our losses in the game while maximizing the losses of the other party. To sum up, the purpose of China’s economic war against the USA is to cause heavy losses to its economy and other potential or real negative consequences, wearing down its economic strength, in order to restrain its political and military strategy and actions for the containment and encirclement of China.

7.3.4 China’s Military Strategy of Active Defense In my opinion, in response to the US strategy of encirclement, China should do the following in terms of military strategy:

7.3 China’s Bargaining Strategy and Tactics Toward the USA

133

Firstly, adhere to the active defense strategy. Against the background of the hightech era and the US shift of its strategic focus eastward, emphasize activeness and initiative regarding military technology, equipment, and operations. Secondly, in China’s relations with other countries, there should be interaction and interconnection between the economic, political, and military aspects. A policy should be pursued that combines amiable gestures and stern measures for overcoming the challenges one by one. Thirdly, China’s sovereignty over Taiwan, the Diaoyu Islands, and the South China Sea islands are part of its core national interests. Therefore, adequate military capabilities including surface-to-air missiles must be maintained to defend them. Fourthly, regarding outer space and information technology, conduct R&D, raise the technological standards, and improve the capability equipment and systems, in order to be able to win a war under high-tech conditions. Fifthly, ensure adequate capability of nuclear deterrence and balance regarding external threats and form China’s own missile interception system in order to be able to strike back in kind when China is under nuclear attack. Sixthly, concentrate the strength on one battlefield and guarantee victory in every battle, in order to win wars and deter other challenges. These issues have been analyzed in detail by numerous experts of military strategy at home and abroad, hence no need for elaboration here.

Chapter 8

China’s Geopolitical Environment and Relations Strategy

In China’s international relations, apart from the very important relations with the USA, relations with other countries and regions, especially neighboring countries, also form an essential part of China’s geopolitical and international relations strategy in the twenty-first century.

8.1 A Sequence of China’s National Interests in Various Parts of the World The influence and national interests of China as a rapidly developing great power have spread around the world. However, since it is still in the process of rising, China faces the restraints of existing systems in the international community and the primary task of sustainable development at home. As a result, it is still the fundamental objective and final purpose of China’s global strategy to secure a peaceful and stable international environment, especially a favorable climate in areas around it. Though our times show many signs of complex interdependence as defined by Joseph Nye and Robert Keohane, there is no denying that we are still in an international system composed of countries with Westphalian sovereignty. Interest-related games between countries, especially between great powers, still provide the basic logic of international politics. Therefore, great powers play indisputably key roles in and form a rough framework of China’s global strategy. The international system that China has been incorporated into is still basically West-oriented, with restraints on China that are at odds with its long-term interests. Regarding the reform of the unreasonable international system, the vast number of developing countries and their natural resources, which are needed for China’s development, forms an extensive background for a show of the glory of China as a great power in the international arena. Thus, we can obtain the following sequence of the distribution of China’s national interests around the world. © Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_8

135

136

8 China’s Geopolitical Environment and Relations Strategy

The first group consists of the ASEAN and the South China Sea region, Japan, Northeast Asia, and Central Asia. A large portion of China’s core interests and strategic dilemmas are concentrated in East Asia, which serves as a strategic basis for the rise of China. In this region, Japan occupies a unique and important position in China’s national interest landscape as a Western power and a neighbor that China bears a lot of grudge against. The second group comprises the USA, Russia, Europe and India. Given the USA’s hegemonic position in the world, properly dealing with the relations with the USA is key to China’s endeavor to secure a peaceful international environment. Russia is a quasi-ally that can be relied upon as a source of strategic support for China’s development of its relations with other great powers. The relations between China and Europe are developing rapidly, but they have entrenched differences that are difficult to overcome fundamentally. Strengthening ties with Germany, France, and Britain is key to China’s development of its relations with Europe. India’s ambition to be a great power and the grudges it bears against China have made its relations with China rife with uncertainties. Nevertheless, it has an increasing importance on the map of China’s interests. The third group is composed of Africa, the Middle East, and Latin the USA. Africa is and will be a reliable strategic partner and an ideal place for China to realize its ambitions as a great power. As an extension of China’s neighboring regions, the Middle East is also of great relevance to China’s interests. However, due to the pressure from the international system and, in particular, special attention from the USA, it is not yet advisable for China to show too much influence in this region. The special geographic location of Latin the USA may cause a premature collision between China’s interests and those of the USA in a context of institutional changes. In that region, for the sake of long-term benefits, China should mainly focus on the economic aspects of its national interests.

8.2 China’s Geopolitical Strategy Concrete practice is key to strategic success. In our opinion, the unfolding of China’s current global strategy should at least involve the following aspects.

8.2.1 Assigning a Leading Role to Economic Means and a Supplementary One to Military Means China’s success mainly lies in its economic rise. It has accumulated more experience and strength in economic fields, which can serve as a solid foundation for the implementation of its global strategy. At present, we should continue to strengthen China’s economic ties with all countries around the world, especially the major powers, forming a system of further mutual reliance. The internationalization of the RMB should also be accelerated so that it could become a major international reserve

8.2 China’s Geopolitical Strategy

137

currency. Research into how to transform market into state action capacity should be intensified; in times of emergency, priority should be given to the employment of economic means. The modernization of military capabilities should be accelerated to reinforce the foundation of national security, with the implementation of economic approaches fortified by military deterrence.

8.2.2 Developing Economic Ties with All Countries Around the World and Assuming Different Military Postures Based on Distance China should promote economic integration in East Asia, support ASEAN’s normative leadership, and establish a favorable system for industrial division of labor as soon as possible. Economic ties with and economic presence in Africa and Latin the USA should be reinforced to increase their economic reliance on China. Military exchanges with major countries should be strengthened, defense forces should become more transparent, and effective strategic nuclear deterrence against great powers, especially the USA, should be established as soon as possible. In contrast, armament and the will to use it can be displayed to neighboring areas to an appropriate degree for an effective deterrence of provocations that threaten China’s essential interests.

8.2.3 Overcoming the USA’s Containment of China For Europe, China should continue to develop strategic partnership with it, increase cultural and social exchange, support the integration process, and enhance mutual trust and disperse suspicion in order to give it a sense of security. Regarding economy, China should deepen its relationship with Europe, broaden the channels and means for access to each other’s market, support euro as a major international currency, and transform what it represents to Europeans from threat to opportunity. Regarding the USA’s military alliance system in the Asia–Pacific, China should concentrate its effective strategic resources and select the best point for making a breakthrough, so that at least one of the USA’s allies might begin to treat the alliance as a political or economic one instead of a military one, undermining the USA’s political credibility in that system. In this respect, Thailand can be won over as a strategic partner. First, China and Thailand have good bilateral relations and no fundamental conflict of interest. Second, Thailand is the most distant from the USA in its Asia–Pacific alliance system. On the strength of its leading role in the regional economic integration process, China can also bring itself closer to Singapore by economic means and strengthen its political ties with that country, dispersing the latter’s misgivings about China’s rapid rise and lowering its expectations of the US alliance system. Regarding

138

8 China’s Geopolitical Environment and Relations Strategy

Japan, China should continue to develop political and economic relations with it. In particular, we should improve non-governmental exchange, increase mutual trust and liking, put differences and disputes under effective control, establish peaceful resolution of differences as a fundamental principle, and make active efforts to weaken Japan’s role in the US alliance system. Regarding the USA, China will abide by the fundamental principle of not making an enemy of it. However, there is another principle above that one: China will firmly resist whatever the USA does to harm China’s essential interests and never make any compromise in this respect.

8.2.4 Getting Prepared for a Limited War Within Ten Years In view of the frailty of the Philippines and the bravado with which it challenges China’s essential interests, China may designate it as a primary target and deal a fatal blow to its defense forces within a short time with the absolute superiority of our navy and air force, in order to destroy its will to make provocations against China and decisively establish the authority of China as a great power in the region.

Part V

China’s Peaceful Civilizational Revival

From the Qin and Han Dynasties until the early 19th century, China had always been among the top countries of the world in the size of both its population and economy. When reform and opening up had just begun, Western politicians and scholars were discussing how China could manage to feed its population of more than one billion. Today, however, some of them are warning against the so-called China threat. This is indeed an astonishing contrast. Now that the reform and opening-up policy have been carried out for over thirty years, how should China deal with other countries around the world when it has become strong? How should it balance its interests with those of other countries regarding resources and environment in the future? What will China be like if it continues to develop for another thirty years?

Chapter 9

Soft Power and the Chinese Civilization

The first half of the twenty-first century will be a historical period when the Chinese nation will achieve a great rejuvenation. The world-class scale of the economy, the global reach of political influence, and an appropriate extent of military presence are all essential to the process of becoming a world power. Equally indispensable, however, is the important role of the cultural factor, which not only bears on the overall protection of national security interests, but also has an immediate effect on the growth of overall national strength, the projection of national interests abroad, the extent to which a rising China can be accepted and recognized by the international community, and even the Chinese civilization’s contribution to and influence on the entire human civilization. Rising as a “cultural power” is essential to the rise of China, for it is a historical mission to be accomplished in today’s cultural development. Therefore, it is of particular importance to give a comprehensive consideration to the development and orientation of China’s cultural soft power in the next three to four decades from a strategic and farsighted perspective inspired by the aspiration to revive a great nation and focused on the progress of civilization for all humanity.

9.1 Assessment of China’s Cultural Soft Power: Strengths and Weaknesses Generally speaking, there are four standards by which China’s cultural strength can be measured.

© Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_9

141

142

9 Soft Power and the Chinese Civilization

9.1.1 Traditional Chinese Culture: Ideals and Elements to Reform On the level of values, the traditional Chinese culture emphasizes “harmony,” which is achieved through efforts to seek common ground while preserving differences. The existence of all things is considered to be due to good reasons. Therefore, they are supposed to coexist in harmony so that common progress can be achieved while contradictions and differences are acknowledged yet put aside. The philosophy of harmony and unity is embodied by the concepts of “benevolent rule” and “the Kingly Way” as far as state governance and inter-state relations are concerned. As Confucius put it two thousand years ago, “If you rule a state by virtue, you will be like the North Star which just stays in its place while all the other stars position themselves around it.” The traditional Chinese culture also advocates peace and cautions against war, requiring the ruler to “attract people from distant quarters with his grace and confidence-building actions.” “Throughout the ages, none of the great strategists was warlike” was a motto for generations of military leaders. China invented gunpowder but did not use it first as an instrument of war. As early as six centuries ago, Zheng He’s fleet reached many countries and regions on the rim of the Indian Ocean. However, the Chinese never used their military power to colonize any foreign land or plunder any other nation’s wealth and resources. That was the best example of this nation’s pursuit of peace and friendship. In the words of Charles Freeman, a former US ambassador to China, “No analogy should be drawn between the rise of China and that of Russia, Germany, Japan or the US, for China does not have the ideology of imperialism, colonialism, mercantilism or militarism; nor does it believe in any heavenly mandate for national or territorial expansion, or any mission to disseminate its culture.1 ” Most of the modern Western powers established and maintained their hegemony by force, and today’s the USA is still obsessed with the global reach of its influence and pursues unilateralism. In comparison, a revived Chinese culture may be able to contribute its unique wisdom and ethics of order to the lasting peace of the world. Chinese culture is also proactively open and inclusive. The inherent cultural merits, the gentle temperament of the people, and the long history of ethnic fusion have endowed China with a positive and open-minded cultural mentality. On the one hand, China has a history of boldly embracing new things and cultures from other countries. Since the Han Dynasty, cultural fusion between China and other countries has taken place numerous times. By incorporating the culture of the Western regions and the Buddhist culture of India, China acquired a strong cultural standing that was widely admired during the heyday of the Tang Dynasty. On the other hand, Chinese culture was so advanced that it was highly attractive to neighboring countries and shaped their cultures. Japan long regarded China as its teacher from the era of the Tang Dynasty until the Meiji Restoration. Confucius temples and Chinese writings were omnipresent on the Korean Peninsula and in Vietnam. The influence of China’s soft 1 “Former

US Ambassador to China Charles Freeman Talks about China–US Relations and the Taiwan Question”, https://news.sohu.com/2004/05/14/00/news220120080.shtml.

9.1 Assessment of China’s Cultural Soft Power …

143

power was further confirmed by the existence of the “China-foreign country system” (huayi zhixu) and the “East Asian tribute system,” which were formed between China and its neighboring countries. Zheng He’s great journeys to the Western Oceans and the famous Silk Road spread Chinese culture to Africa and Western Europe, where it would have a deep influence on thinks of the Enlightenment. As Paul Kennedy put it in The Rise and Fall of Great Powers, “Of all the civilizations before the modern age, none was more developed or sophisticated than the Chinese civilization.”2 Chinese culture is essentially a pluralistic yet unified one. Unlike the Roman Empire and the Mongolian Empire, which collapsed once and for all, China survived five centuries of division in the late Zhou Dynasty and four centuries of division after the late Han Dynasty, and was eventually reunified, restored and expanded. Each time, the disintegration of a political unity resulted in ethnic and cultural fusion on a grand scale that paved the road for new political unification. Karl Theodor Jaspers said that uniformity in all aspects—culture, religion and state—reached its summit after the establishment of a unified empire in China. For the Chinese consciousness, the unified whole is the human world and a unique empire.3 Such historical continuity was never interrupted even in the case of the most serious breakdown of other elements of the Chinese civilization. Such unity was an important reason why the Chinese nation could survive millennia of vicissitudes and a significant guarantee of the strong national cohesion and flourishing national spirit among the Chinese people. It was on the basis of the recognition that Chinese culture is both pluralistic and unified that Arnold J. Toynbee predicted with certainty that the future world would essentially be united in culture, and that the historical mission could not be undertaken by Europe or the USA, but by China. The peaceful unification as I foresee can only crystallize and expand around a geographical and cultural axis, which I surmise will not be in the USA, Europe, or the Soviet Union, but in East Asia. … World unification is a way to save humanity from collective suicide. The best prepared of all the existing nations for this is the Chinese, who have developed a unique way of life for two thousand years.4 However, we should also be aware of what is at odds with today’s social development in China’s cultural tradition. Those elements have to be reconstructed and improved in accordance with social progress. For instance, the idea of Golden Mean has led to a common tendency toward conservatism and introversion in the personality of Chinese people; the veneration of power and the entrenched “bureaucrat standard” (guanbenwei) have also hampered the development of modern political civilization to some degree. Moreover, since China has lagged behind the West in science and technology, the Chinese people have been lacking in cultural confidence in dialogues between Chinese and Western cultures over the past century, which has considerably affected the progress of Chinese culture and the enhancement of our 2 Kennedy,

Paul. The Rise and Fall of Great Powers. International Culture Publishing Company, 2006, 4–6. 3 Jaspers, Karl. The Origin and Goal of History. Tr. Wei Chuxiong et al. Huaxia Press, 1989, 294. 4 Ikeda, Daisaku & Toynbee, Arnold. Choose Life: A Dialogue Between Arnold Toynbee & Daisaku Ikeda. Tr. Xun Chunsheng et al. International Culture Publishing Company, 1997, 283–284.

144

9 Soft Power and the Chinese Civilization

national strength. Therefore, it has become a vital task for China’s cultural progress to engage in cultural exchange with Western countries with greater confidence and incorporate the essence and achievements of Western culture while maintaining its uniqueness in order to achieve constant innovation and development.

9.1.2 The Development and Refinement of China’s Political Culture After the founding of the PRC in 1949, China soon established a socialist cultural system based on Marxism, which played a most useful role in encouraging the whole nation to take part in social reforms and construction. Since the advent of reform and opening up, China has reestablished the principles of “emancipating the mind” and “seeking truth from facts,” and reformed what is no longer compatible with social and economic development in the political culture and superstructure. As a result, the political culture of socialism has gained new vigor and vitality against a new historical background. Even after the collapse of the Soviet Union and the political upheavals in Eastern Europe, China still retained its mainstream ideology, which provided the guideline for its cultural prosperity and economic development. One of the most important things to learn from such experience is that, instead of making a dogmatic interpretation of Marxism, China has developed and applied Marxism according to its national conditions and in a realistic and pragmatic way in pursuit of a socialist cause with Chinese characteristics. This is known in China as the “sinicization of Marxism.” While continuing to emphasize “socialist” principles in constitutional government, social management and the mode of production, China has drawn upon certain reasonable elements of the Washington Consensus based on neo-liberalism, such as the stress on the fundamental role of the market and the need to inspire the enterprising spirit for the vitality of development, protect and increase the range of private ownership, and embrace international rules of free trade. The purpose is to maintain the state’s capability of social macro-control and the allocation of resources, and to combine the favorable factors of both socialism and capitalism for a rational balance between society and state, between market and government, and between private ownership and public ownership. Unlike most of other developing countries, which have copied Western institutions and experience wholesale, China has taken the initiative to incorporate selected elements of Western institutions and ideals into its own political and social systems in view of what is really necessary for its reform and opening up, with the purpose of finding a course of development that is best suited to its national conditions. This is a progressive path of reform and development involving gradual steps forward based on the existing flawed systems, in keeping with the traditional preference for moderateness and harmony in Chinese culture. However, we must also recognize the fact that China’s reform still needs to go deeper, that its political and economic systems have yet to be fully established, and

9.1 Assessment of China’s Cultural Soft Power …

145

that the socialist political culture with Chinese characteristics has yet to attain maturity. Against the general background of the market economy and the rise of popular and commercialized culture, there is a great challenge to China’s ideology and political philosophy regarding their capability of integrating social values. Therefore, it is necessary to adjust or transform the existing institutional culture in order to adapt it to the change of the times. Otherwise, the rise of China would be lacking in an adequate cultural foundation and spiritual motivation. Worse still, the whole society might end up in a situation of anomie, which means that the existing patterns of behavior and values would be universally doubted, denounced or seriously damaged, whereas new patterns of behavior and values would have yet to take shape or be commonly accepted. As a result, there would be no clear social norms to guide the behavior of the members of society, leaving them in a moral vacuum.

9.1.3 Education and the Culture Industry: Strengths and Weaknesses Since the advent of reform and opening up, the Chinese government has never ceased to vigorously develop its culture and education. Its efforts have significantly narrowed the gap between China and the outside world in science, technology, education, and culture, providing a strong impetus to the flourishing and progress of Chinese culture. According to the Report on Population and Labor Issues 2009 released by the Chinese Academy of Social Sciences, over the past three decades, the nine-year compulsory education has covered over 95% of the population, the percentage of illiterate young and middle-aged people has dropped below 5%, and the gross rate of enrollment in institutions of higher learning has reached 21%.5 Having long been a “world factory,” China is also making incessant contribution to economic restructuring and industrial upgrading through independent innovation in brand and technology. China has developed the world’s fastest super computer and become the third country, after the USA and Russia, to conduct manned spaceflight and launch man-made satellites. However, China’s cultural strength is still inferior to that of other major countries as far as the key indicators are concerned. For instance, in comparison with the main developed countries, the average duration of education in China still needs to be extended. In 2005, the average duration of education of working-age people was 13.63 in the USA and 12.9 in Japan—about five years longer than the corresponding duration in China. There is also a significant gap in the expected duration of education, which was 12.3 years in China but 14.7 years in the USA in 2005.6 Moreover, there is a significant urban–rural divide in China’s education. In particular, the weakness in basic and vocational education in rural areas has a direct impact on the 5 “Academy

of Social Sciences: Maximizing Average Years of Education is Key to Educational Development in China”, https://www.china.com.cn/news/2009-09/08/content_18484499.htm/. 6 “Academy of Social Sciences: Maximizing Average Years of Education is Key to Educational Development in China”, https://www.china.com.cn/news/2009-09/08/content_18484499.htm/.

146

9 Soft Power and the Chinese Civilization

Table 9.1 Bilateral copyright trade between China and other major countries in 2011 Country

Exported copyrights

USA

1077

UK

433

Germany

Imported copyrights

Difference in number

Export–import ratio

5182

−4105

1:4.82

2595

−2162

146

895

−749

1:6.13

France

129

720

−591

1:5.59

Russia

40

57

−17

1:1.43

Canada

16

140

−124

1:8.75 1:1.20

1:6

Singapore

221

265

−44

Japan

187

2161

−1974

1:11.56

South Korea

507

1098

−591

1:2.17

Others

5027

3526

1501

1.43:1

Total

7783

16,639

−8856

1:2.14

Source of data State Press and Publication Administration: Overall Situation of the Chinese Press and Publishing Industry in 2011, in China Press and Publication, Aug. 7, 2012

educational level of their population. A second example is Chinese inventors’ applications for foreign patents. Though the number of such applications has increased rapidly—even faster than developed countries in recent years, there remains a significant gap between China and the main developed countries in the absolute numbers of applications and granted patents. According to the information released by the State Intellectual Property Office (SIPO), in the first half of 2011, there were 3025, 1014, 530, and 287 Chinese applications for invention patents submitted to the USA, Europe, Japan and South Korea, respectively; during the same period, there were 13,735, 14,940, 18,840, and 3595 applications to China from the USA, Europe, Japan, and South Korea.7 With a cultural industry still at an incipient stage, many of China’s cultural products are confined within its borders. At present, there are two structural flaws that are hindering the internationalization of China’s cultural industry: Firstly, the total import and export of cultural products account for a low percentage in China’s total foreign trade; secondly, there is an enormous trade deficit in this respect, which means there is a need to expand the overall scale of the cultural industry and improve its international competitiveness. According to the report on the Overall Situation of the Chinese Press and Publishing Industry in 2011 released by the State Press and Publication Administration, in 2011, China exported 7783 copyrights and imported 16,639, at a ratio of 1:2.14. There is a serious deficit in China’s copyright trade with other major countries. In particular, the export and import ratio is 1:4.82, 1:6, 1:6.13, 1:5.59, 1:11.56 in China’s copyright trade with the USA, Britain, Germany, France, and Japan, respectively (Table 9.1). 7 “A

Steady Increase in China’s Applications for Invention Patents to Other Countries in the First Half of 2011”, https://www.ipr.gov.cn/gndtarticle/ttxw/201108/1248750_1.html.

9.1 Assessment of China’s Cultural Soft Power …

147

9.1.4 The Spread of Chinese Culture Abroad: Achievements and Challenges Recognizing the necessity of foreign cultural communication to the rise of soft power, China has remarkably intensified its efforts in this respect. Since 2003, China has hosted reciprocal cultural years or festivals with France, Italy, Russia, India, Australia, and Turkey. For instance, during the two years between October 2003 and September 2005, when China and France observed reciprocal cultural years, hundreds of brilliant cultural exchange programs in painting, sculpture, theatre, film, and fashion were carried out one by one in Paris, Marseilles, Beijing, Shanghai and Guangzhou, to the great excitement of the people of both countries. According to incomplete statistics on the French side, two million French citizens took a direct part in the Year of Chinese Culture. On January 24, 2004, when China was observing the Spring Festival, the Eiffel Tower was entirely covered in “Chinese red.” Over 700,000 French citizens flocked to the Champs-Élysées to watch the Chinese pageant with 10,000 performers. The event attracted an even larger turnout than the annual parade on the French National Day. As French Prime Minister Jean-Pierre Raffarin said in his speech at the closing ceremony, “The diverse events during the Year of Chinese Culture have satisfied the French people’s curiosity about Chinese culture and made them understand the Chinese people’s creativity and imagination.” Thanks to its time span, scale, and influence, the Year of Chinese/French Culture has become a successful milestone in the history of Sino-French and international cultural exchange, making precious contribution to the preservation of cultural diversity for humanity. In recent years, China has actively promoted cooperation between itself and other countries in the exchange of students, reciprocal visits by teachers, and scientific and technological R&D. In particular, the Confucius Institute has been innovated as a platform for the promotion of educational and cultural exchange between China and other countries. Since the founding of the world’s first Confucius Institute in South Korea in November 2004, 350-odd more have been established in nearly 100 countries and regions, which serve as important platforms for the teaching of the Chinese language, spreading Chinese culture, promoting exchange and enhancing the image of China through language programs, the training of Chinese language teachers, and exchange of information about education and culture. Meanwhile, there has been a steady growth in the number of foreign students coming to China. In 2011, the total number of foreign students in China exceeded 290,000 for the first time, with 292,611 students from 194 countries and regions staying at 660 colleges and universities, research centers, and other academic institutions in 31 provinces, autonomous regions and municipalities directly under the central government (excluding Taiwan, Hong Kong SAR, and Macau SAR). A new high was reached in four aspects since the founding of the PRC—the total number of foreign students in China, the number of the countries and regions they are from, the number of Chinese institutions that have admitted such students, and the number of foreign students receiving scholarships from the Chinese government. In the future, the Ministry of Education will continue

148

9 Soft Power and the Chinese Civilization

to improve the educational environment for foreign students, emphasize standardized management, and improve educational quality. It has set the goal of increasing the number of foreign students in China to 500,000 by 2020, making China the largest destination for international students in Asia. The spread of Chinese culture abroad involves material culture, artistic culture, and ideological culture. Among these, ideological culture is the most difficult to understand and accept for people in other countries. However, once understood and accepted, it can produce among them a strong and steady love of Chinese culture. Material culture is the most attractive and readily acceptable for foreigners, but it can only generate the lowest degree of interest. Artistic culture lies between the other two cultures in the difficulty of acceptance and the degree of interest it can generate. At present, the spread of Chinese culture abroad predominantly involves material culture (e.g., Chinese clothing, porcelain, silk, and food) and artistic culture (e.g., Chinese operas, kung fu, and calligraphy). The spread of ideological culture is exactly the weakest link. In comparison with the global dissemination of traditional Western cultures and religious cultures, the international influence of traditional Chinese thought is still rather limited and mainly confined to East Asia. In comparison with the global spread of contemporary Western political thought, the influence of today’s political thought in China is even more limited; in fact, it has not yet been understood and accepted by most of the other countries in the world. A genuine love of Chinese culture among the people of other countries cannot be inspired by material and artistic culture only, for it must involve a deep understanding of China’s ideological culture. Generally speaking, China is a country that has abundant cultural resources thanks to its long history and tradition. It is also making progress in contemporary culture and technology with each passing day. However, it is not yet a “cultural power”; just as it is a developing country, China’s cultural strength is also in the process of “developing.” Furthermore, regarding the way China conducts cultural exchange with other countries, there is a need for modernization and restructuring, hence a host of difficulties and challenges against its development. This has considerably affected the progress of Chinese culture itself and the increase of its influence abroad. In comparison with hard power factors, be they political, economic, or military, the enhancement of cultural soft power has yet to receive more attention. The state needs to increase its spending in this respect, and cultural and technological innovation should pick up speed. How to accelerate the improvement of our cultural strength in response to the strategic demand for peaceful development has become one of the grand strategies that must be considered for the future of China.

9.2 The Strategic Goal of China’s Cultural Development in the First Half of the Twenty-First Century China’s strategic goal in the first half of the twenty-first century is the peaceful rise of the nation, which involves two aspects: Firstly, The great rejuvenation of the

9.2 The Strategic Goal of China’s Cultural Development in the First …

149

Chinese nation is a dream that must be eventually realized in the twenty-first century; secondly, China will become a strong nation not by force, but by peaceful means. The political ideal of peaceful development implies a fundamentally unique purpose for Chinese culture. On the one hand, it must contribute to the rise of China as a world power; on the other hand, it must help to ensure that this will be realized in a peaceful way in order to fulfill our commitment to “peaceful development.” Therefore, it is an inherent requirement in China’s pursuit of a world power status that it become a “cultural power,” which is crucial to whether and how China will join the ranks of world powers. In view of China’s strategic objective of peaceful development and the cultural aspects of its national conditions, the future strategic framework of Chinese culture should mainly involve the following tasks on three levels. The most fundamental and pressing task is to achieve a generally sound development in the nation’s cultural security environment. In the age of globalization, cultural security is a concept that is mainly applicable to developing countries. Faced with unilateral cultural export and expansion by Western countries, developing countries have not only fallen into a predicament regarding the survival and development of their cultural industries, but also found it difficult to retain their independence regarding their political philosophy, ideology, values, and way of life. At present, Chinese culture is facing two primary challenges: firstly, the cultural ramifications of globalization and its tremendous challenge to China’s cultural sovereignty, which is a reflection of the North–South relationship in the context of globalization; secondly, the USA’s cultural policy toward China and its impact on the survival and development of Chinese culture, which is a manifestation of China–US relations in the cultural area. Ever since the founding of the PRC, it has been an essential part of the US government’s policy toward China to interfere with China’s domestic affairs through cultural issues in an attempt to alter China’s political system and bring about a “peaceful evolution.” Since the end of the Cold War, the ideological confrontation between the two countries has abated noticeably, and ideological differences have had a less influence on China–US relations than before. Nevertheless, some US politicians bent on realizing the “end of history” still regard the world’s only major socialist country as their mortal enemy, even considering China as a main competitor for the USA’s global hegemony. As a result, it has become an important consideration regarding US-China relations for some US political leaders to alter China’s political and ideological choice and bring about a complete global victory of capitalism over communism. This factor will hold away over China’s cultural security environment for a long time to come and impact the strategic orientation of the development of Chinese culture. With the steady growth of its national strength, China needs to expand the strategic domain of its culture in order to develop a cultural influence that is commensurate with its status as a world power. Generally speaking, a regional power would see the region where it is located as its strategic domain, extend its influence toward the other regional countries, and establish its range of security during the process. A world power, in contrast, would push its strategic frontier beyond the region where it is located, if not to the whole world, and tends to use it as the basis of its sphere of influence. Since culture can be exchanged and transmitted, a world power can

150

9 Soft Power and the Chinese Civilization

leverage its superb cultural strength to establish, either consciously or otherwise, a cultural domain far beyond its soil and neighboring areas. The expansion of the cultural strategic domain is not necessarily a product of hegemony and power politics; it is in fact an objective reflection of a great power’s strong cultural, economic and political influence. Now it is time for the rising China to consider the external influence of its culture and adopt a proactive strategy for the export of its cultural products and ideas, so that the world will not only admire its economic achievements, but also respect its attitude toward the development of its culture and constructive opinions on cultural progress around the world. In a word, the expansion of the cultural strategic domain will be one of the principal signs of China’s growth as a great power. In the long run, Chinese culture needs to make its own contribution to the progress of human civilization in a full demonstration of its worldwide value and historical significance. Such contribution not only comprises science, technology, and innovation, but also China’s thinking and visions regarding the evolution of world order and where human society is going. For instance, how should different countries coexist? How should different nations respect each other? How should human society build a world of universal harmony? For these questions, different perspectives and ideas from those of the West may be derived from the emphasis on harmony and unit that is essential to Chinese culture. Based on their history and way of thinking, Westerners tend to pay more attention to the conflicting side of countries and civilizations, and to follow a pragmatic or Hobbesian political philosophy in their reflections upon the world. In contrast, the Chinese are inclined to a pluralistic and inclusive view on different types of civilization and culture, and are therefore hopeful about the future of humanity. As Mr. Liu Changle, chairman and CEO of Phoenix Television, said in his speech at the World Civilization Forum held in New York in November 2011, “On the cultural level, the Christian civilization is always on guard against an enemy that might emerge from among the pagans; in contrast, the Confucian civilization is always ready to welcome a friend coming from afar … That is why, as the first inventor of gunpowder, the Chinese used it to make firecrackers for ceremonies and the reception of friends, whereas the Europeans built upon the Chinese gunpowder technology and invented rifles and cannons with which they would enter China by force. Bearing this in mind, we will be able to understand why the European warships plundered innumerable treasures from China whereas Zheng He’s fleet, which consisted of over 240 ships and more than 27,000 men at one point, gave away all the valuables they carried to the countries they passed during their journeys to the Western Oceans and returned empty-handed.” In recent years, in proposing the new concepts of “peaceful development” and “harmonious world,” China has been telling the world that it will develop itself by peaceful means and, at the same time, devote itself to building lasting peace and common prosperity around the world. This has been the latest development of traditional Chinese ideas. To build China into a great cultural power is not only an intrinsic requirement for the rise of China, but also an important contribution to the development of the whole world, for this will

9.2 The Strategic Goal of China’s Cultural Development in the First …

151

prove that humanity is capable of solving an age-old problem, i.e., “the rise of a great power is bound to cause international conflicts,” by rational and peaceful means. In view of the progress of human civilization, the fundamental motive power of world history comes from cultural diversity as well as collisions between and fusion of different cultures. Though it originated from the West, the globalization process does not necessarily mean Westernization or worldwide dominion by the West. In fact, equal dialogue and contact between nations and between civilizations will gradually emerge with the deepening of global inter-reliance. In particular, the ancient civilizations of developing countries in Asia and Africa, whose rich legacy is combined with their contemporary progress, are bound to play special and important roles in the development of cultural pluralism and diversity worldwide. The Chinese nation created a splendid culture that provided a powerful impetus to the progress of human history. The national rejuvenation process that is being advanced is bound to renew the glory of the age-old Chinese civilization, turning the Chinese people once more into movers and shakers of human history. If China genuinely achieves economic prosperity and cultural revival in the future, the significance would not be confined to lifting the world’s largest developing country out of poverty and advancing the well-being of billions of people. From the broader perspective of the international system, it will help to build a more fair and just international order, radically change the marginalized status of developing countries in the world’s political, economic, and cultural systems, and take a further step toward the disintegration of the Western countries’ absolute domination of the international system since the fifteenth and sixteenth centuries. This is no doubt of great significance for the progress of the entire human civilization.

9.3 Concrete Plan for the Future of Chinese Culture Based on the strategic goal of building China into a “cultural power,” we may put forward the following plan for the future of Chinese culture.

9.3.1 Increasing the International Influence of Chinese Culture Underpinned by five thousand years of history, Chinese culture embodies the Chinese nation’s unique character, values, and sentiments. Traditional Chinese culture is based on the five essential qualities of “benevolence, righteousness, courtesy, wisdom, and integrity,” which are derived from two profound ideas—harmony and unity (hehe), and the Golden Mean (zhongyong). “Harmony and unity” involves an emphasis on “seeking common ground while preserving differences” (i.e., pluralistic coexistence), veneration of peace, and opposition to war. “The Golden Mean” requires

152

9 Soft Power and the Chinese Civilization

freedom from bias and refraining from both excess and falling short, with emphasis on the maxim “do not do to others what you would not have them do to you.” These ideas have shaped the unique character of the Chinese nation and ensured the unfailing vitality of both the nation and its culture. However, many elements of the traditional culture at now at odds with the progress of the times. It is necessary to reform what is backward, feudalistic, and too conservative, and develop the cultural elements of a universal nature. In the preservation and reform of Chinese culture, the following issues deserve our attention: firstly, how to incorporate the ideals and values of socialism with Chinese characteristics into Chinese culture as a natural part of it; secondly how to enable Chinese culture to promptly reflect and embody the new thinking, new ideas and new orientations that emerge during the process of reform and opening up, so that it would become more up-to-date and relevant; thirdly, Chinese culture should also accommodate such values as democracy, equality, fairness, and justice in order to become more universal and more appealing to the rest of the world.

9.3.2 Promoting a Transition Towards an Export-Oriented Mode of Cultural Development All countries around the world have noticeably quickened the steps for the industrialization of culture. In the context of accelerating globalization, with constant adjustments in economic and industrial structures worldwide, the development of cultural industries and their level of modernization have become important standards by which to measure a country’s foreign trade capacity, which in turn bears on its overall national strength and international influence. It is therefore of particular importance to devise a strategy for the industrialization of culture. On the one hand, China should continue to stress the “ushering in” strategy, introducing advanced technology and cultural industry concepts from abroad in order to bridge the gap between China and developed countries within a short time, establish our own cultural industry system, and upgrade our cultural products. On the other hand, China should also lay a timely emphasis on the “going out” strategy. That is to say, while continuing to import cultural products, China should shift the strategic focus of its cultural industries towards export, devising a development plan aimed at enabling them and their products to “go out.” Not until China’s cultural products have genuinely crossed the national borders can China really boost its cultural strength and rapidly increase the influence of Chinese culture.

9.3 Concrete Plan for the Future of Chinese Culture

153

9.3.3 Furthering Multilateral Dialogue and Cooperation Between Cultures China has already attained the strategic understanding that abundant cultural resources do not necessarily entail a strong soft power, for proactive cultural diplomacy is a must for the translation of such resources into cultural strength. Along with economic diplomacy, cultural diplomacy will form a vital part of the country’s overall diplomatic strategy. In the future, China needs to effectively combine “ushering in” and “going out,” intensifying cultural dissemination abroad, in order to show how China is developing and changing, and what this means to the world. In recent years, some main media outlets and TV networks in China have started to set up branches abroad. For instance, in January 2012, China Central Television (CCTV) established its first overseas branch in Africa, which has developed a new model of communication that involves the invitation of Africans to tell, in languages familiar to them, stories about Africa, China, and China-Africa relations. In the future, apart from efforts to improve the technology, techniques, and means of communication, China will also need to further formalize the principles. For instance, what kind of China should be presented to the world? What is the true image of China? What are the essential concepts of the “Chinese perspective”? These questions must be clearly answered before a greater progress can be made in China’s communication with other countries. Due to the pluralistic nature of the sources and targets of cultural soft power, differentiated cultural diplomacy should be conducted toward different countries and regions. For developing countries, it should not be focused on China’s ancient culture and traditional aesthetics, but on China’s economic growth and innovation capacity; in particular, it should highlight the exemplary effect of China’s rapid development in order to enhance China’s appeal to the developing world and win for China due respect and good reputation in South–South cooperation. For the neighboring countries, China should clearly convey the idea of peace and cooperation and, by celebrating our traditional veneration of harmony and expounding our policy of peaceful diplomacy, build up trust, dispel suspicions, and enhance their understanding of our strategic intentions. For Western countries, China should make a full demonstration of the vigor and vitality of its development and the new look it has taken on, highlighting changes in its society and its modernization process, with more discussions on its innovation, the unceasing flow of new ideas, and new actions to meet all kinds of challenges. In cultural diplomacy, importance should also be attached to participation in international multilateral cultural mechanisms, through which China can convey its cultural opinions in the formulation and modification of international cultural norms and rules. While protecting its cultural interests that keep growing along with its peaceful rise, China can contribute its wisdom to the flourishing of culture worldwide as well as mutual confidence and understanding between nations. For a long time in the past, China neglected the creation and management of international mechanisms and responded passively to most international mechanisms. As a result, it was

154

9 Soft Power and the Chinese Civilization

only capable of making expedient response to international institutions and relevant arrangements led by other countries, which made it difficult to defend its due rights and interests, and expand its influence in the world.

9.3.4 Enhancing Mutual Understanding and Confidence Between China and Other Countries Today’s world is composed of sovereign states, which have different characteristics regarding political, economic, cultural, and historical traditions. For instance, vast differences exist in terms of political views on democracy and human rights. Following the course of socialism with Chinese characteristics, China is quite different from Western countries in values, ideology, and political system. The difference in political philosophy is essentially a reflection of the world’s diversity of political culture. From a worldwide perspective, any country’s political ideals form an essential part of humanity’s political civilization, deserving our recognition and understanding. Despite the vast differences in this regard between China and the West, there has been unceasing dialogues—both direct discussions between governments and exchange and cooperation between NGOs, individuals, and academic societies. Such efforts are helpful for enhancing the understanding of each other’s values. It can be foreseen that, though it is indeed difficult to eliminate the ideological differences between China and the West, it is still possible to enhance mutual understanding through regular and multi-level communication and dialogue for the avoidance of negative impact on the overall diplomatic efforts of both sides. Additionally, China will draw upon Western institutions and ideas, conduct active exchange and cooperation with other countries, and keep improving its political institutions and building its political civilization. China should enunciate to the international community its belief that democracy, liberty, and equality are indisputably universal values that represent the direction of development for human society. At present, the Chinese people are also devoting themselves to political democracy and social progress. China has also adhered to the cultural values based on pluralistic coexistence and equal competition. It is from the perspective of such values that we consider the existence of different cultures and social systems in the world and draw upon all advanced achievements of human civilization, which can be made use of according to our actual demands. Moreover, we will reform and improve our tradition so that Chinese culture and values could spread beyond our borders and benefit the whole world.

9.3 Concrete Plan for the Future of Chinese Culture

155

9.3.5 Protecting and Expanding the Nation’s Cultural Security-Related Interests A favorable cultural security environment refers to a largely secure external context for the survival and development of the nation’s culture, which is mainly reflected by the integrity of its cultural sovereignty and the effective protection of its cultural interests. What is essential to Western countries’ cultural policy toward developing countries is not the occupation of their cultural markets for practical interests, but the wholesale export of their values and modes of political and economic development for a thorough conquest of their people’s minds and a complete reform of their beliefs, in an attempt to make them willingly subservient and win a bloodless victory. Faced with such acts of cultural hegemony and the subsequent threat to cultural security, China should adopt a proactive policy for cultural security and take the initiative in guarding against the challenges in order to protect its interests in this respect more effectively. While working hard to enhance its overall cultural strength and international competitiveness, China should also heighten cultural security awareness and improve the early warning system, getting ready for making a comprehensive use of legal, administrative and market means for the protection of its cultural market and cultural interests. While defending the state’s cultural sovereignty, we must not confuse the protection of cultural security and the aspiration for cultural revival with narrow-minded cultural protectionism and cultural nationalism, so as not to reject what is desirable in other cultures due to simplistic and blind self-imposed isolation.

9.4 Conclusion The late historian Arnold J. Toynbee, who had great confidence in the Chinese civilization, said that Western observers should not underestimate the possibility that China may consciously combine the more flexible and fierce firepower of the West with its traditional culture, which is conservative and stable. Success in such conscious, temperate, and appropriate combination may provide human civilization with a brand new cultural starting point. In the past century, China has been clearly inferior to the West in science, technology, education, and the creation of new knowledge. However, the rapid development of the Chinese economy and the concomitant flourishing of culture and wave of technological innovation are bound to significantly improve the global status and influence of Chinese culture. The revival of Chinese culture will not only contribute to the rise of China as a great power and the realization of the national dream that has been pursued for more than a century, but also offer our unique wisdom, ideas and thought to the progress of human civilization in a renewed demonstration of the enormous appeal of our civilization. Difficult as it is, this process will be looked forward to with keen anticipation.

Chapter 10

Peaceful Development and National Rejuvenation

There is a need to make it clear to the world that China will follow the path of peaceful development. China will never take the lead among countries around the world. When it becomes strong in the future, China will continue to adhere to the principle of peaceful coexistence and will never interfere with other countries’ internal affairs by force or invade them.

10.1 China’s Path of Peaceful Development It is of utmost importance to conduct profound academic research aimed at making the world understand China’s path of peaceful development and securing a peaceful environment for development. However, the current discussions about China’s peaceful development are either unappealing to the rest of the world due to the employment of old-fashioned discourse or lacking in sound logic and cogent argument. How, then, should we analyze and understand this concept? What does it essentially involve?

10.1.1 Peaceful Development: Definition and Meaning It is apparent that the path of development and the path of peaceful development are two distinct albeit associated concepts. The path of development, in its usual sense, refers to the way a country or a region develops itself. Regarding its connections with the outside world, it mainly concerns the adopted approach to economic ties. The path of development, as far as its connection with the outside world is concerned, can be classified into the path of peaceful development and the path of non-peaceful development.

© Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2021 T. Zhou, China’s Renaissance: Global Strategies in 21st Century, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-16-2293-9_10

157

158

10 Peaceful Development and National Rejuvenation

What, then, is the path of peaceful development? It is essentially defined as a mode of development in which a country, during its progress from an under-developed state to a developed one, chooses to conduct peaceful exchange with different cultures and values, never imposing its ideology and values on any other country, gaining and forming the resources and markets necessary for its development not by force, but through fair division of labor, collaboration, investment and trade, and industrializing itself without detriment to the global ecological environment. The contemporary path of development mainly involves the following: Firstly, no country should gain the resources and markets necessary for its development or export its ideology and power by force or hegemonic power. However, it needs to possess a certain quantity of armed forces for protecting the integrity of its territorial land, waters, and airspace, ensuring the security its routes of transport across land and sea, safeguarding outer space flight routes, satellites and other facilities, and participating in international peacekeeping operations. Secondly, while developing their relations with the rest of the world and participating in the globalization process, countries should, in the spirit of covenant, protect material and intellectual property, conduct exchange at equal value, respect contracts and agreements, and follow the rules made by consensus, abiding by the principles of equal division of labor, collaboration, and equal exchange on the market. Thirdly, while developing itself, every country should further its modernization process without detriment to the global ecological environment and through the sustainable use of resources. Fourthly, healthy competition between countries should be promoted, and non-cooperative games should be replaced by cooperative ones. Communities of economic development at various levels can be formed between countries through bilateral and multilateral cooperation for win–win results. Fifthly, all developed countries in the world as well as major developing countries need to undertake more responsibilities and obligations for protecting world peace, narrowing the gaps between nations, ensuring the safety of the world’s ecological environment and resources, and achieving common development of humanity. Sixthly, in the long run, peaceful development of all humanity calls for the establishment of negotiation mechanisms between countries or regions so that they could reach consensus over significant issues, make common rules of action, and build a functioning and effective structure of global governance, i.e., an institutional model of global peaceful development.

10.1.2 Socialism and China’s Path of Peaceful Development There is a frequently encountered question in our research: what is the relationship between China’s path of peaceful development and the path of socialism with Chinese

10.1 China’s Path of Peaceful Development

159

characteristics? The US global strategy, as far as its values are concerned, aims at preventing the revival of fascism, religious extremism, terrorism, and extreme communism around the world. Likewise, socialism is the core value and banner of China’s path of peaceful development. Therefore, the aforementioned question cannot be evaded in our analysis of China’s path of peaceful development.

10.1.2.1

Socialism with Chinese Characteristics is a Concept Central to the Path of Peaceful Development

Socialism with Chinese characteristics involves developing productive forces, making the people rich, achieving common prosperity, building a harmonious society, maintaining peaceful coexistence with other countries for common development, and pursuing the goal of building a modernized country featuring democracy, liberty, and law and order. As the core values of socialism with Chinese characteristics, these are the guidelines for China’s path of peaceful development. Chinese socialism is a path developed by the CPC, which has introduced Marxism to the Chinese people, led them in armed revolutions and through the War of Resistance to Japanese Aggression and the War of Liberation, founded the People’s Republic of China in 1949, braved all the challenges during the three decades after that, and spent the next three decades exploring the journey of reform and opening up. Despite the mistakes we have made along this path, we corrected them with great courage toward the end of the 1970s and initiated reform and opening up. In view of our national conditions, we have recognized the fact that China is still at the initial stage of socialism with severely under-developed productive forces and established a basic economic system with Chinese characteristics featuring socialist market economy, the simultaneous development of various systems of ownership, and the contribution-based distribution of factors of production; we have also chosen the socialist course of developing productive forces and achieving common prosperity. These are essential elements of socialism with Chinese characteristics, representing a choice made by the Chinese people and the CPC after a century of struggle. These history-forged values embody a path and a banner that can never be changed. The Chinese people take names very seriously, for no undertaking can go smoothly unless it is properly named. A person is given a name when he is born, and it will never be changed throughout his life without a good reason. Socialism has been China’s political name for over six decades. If it is changed, there will be ideological confusion among different social strata, regions and ethnic groups, generating skepticism about the CPC’s leadership, the system of state governance, and the development strategy as well as all the guidelines and policies; worse still, this might interrupt the process of building a moderately well-off society with Chinese characteristics in all aspects and thwart the goal of attaining the level of a moderately developed country by the mid-twenty-first century. It is true that, in the spirit of emancipating the mind and seeking the truth from facts, certain advanced experience of capitalism can be incorporated into socialism with Chinese characteristics, which can be modified and reformed according to changes in China and the rest of the world, objective laws, and

160

10 Peaceful Development and National Rejuvenation

inevitable trends in the evolution of human society. However, as a name, a banner and a path, “socialism with Chinese characteristics” can never be changed at will. The primary stage of socialism with Chinese characteristics will last a century, and it will take China several centuries to attain the level of a mature socialist society. As President Jiang Zemin said in his report to the 15th CPC National Congress, “This historical process will take at least one hundred years. As for the consolidation and further development of socialism, it will take a much longer period of time, involving unswerving endeavor by several, a dozen, or even tens of generations.”

10.1.2.2

China’s Path of Peaceful Development Involves no Export of Ideology or Revolution

Though China adheres to socialism, it is necessary to clarify that China will never export the socialist ideology in its contact with other countries. More than 100 years ago, Marxists urged all proletariats of the world to unite. In the twentieth century, the leftist trend of thought also caused China to chant the slogans of “support the world revolution” and “liberate all humanity.” However, toward the end of the 1970s, the principle of world revolution gave way to that of respect for every people’s choice regarding ideology, values, and social system. As part of a country’s internal affairs, this should be no cause for outside intervention. Secondly, in its contact with other countries, China will be even more loath to export ideology-guided violent revolution. In the last century, countries with different ideologies used to export values, send weapons, and provide funds to each other’s opposition forces in support of their attempts to overthrow the establishment by armed revolution and replace it with a government that endorses their principles and theories, in the hope of creating a camp of ideologically homogeneous countries. Nowadays, in the twenty-first century, the behavioral pattern of armed intervention from outside a country for changing its ideology and values should be terminated, and war should no longer be an option for unifying the ideologies and values of different nations. Instead, it will be up to the people of any country to choose its ideology, values, and political system. Thirdly, China is drawing upon and incorporating what has proven to be advanced parts of civilization in the capitalist society. In particular, these concern the values that are common to humanity and which have proven to be in line with the people’s will in the capitalist society, such as equality, liberty, democracy, the rule of law, and law and order. Guided by these ideals, we will continue to reform and refine our economic, social, cultural, and political institutions within the general framework of socialism with Chinese characteristics. Fourthly, in its contact with other countries, China makes a distinction between ideology and culture, never exporting the former while promoting cultural exchange between countries and peoples. For instance, China has opened its cultural market to foreign music, operas, movies, and literature and encourages efforts to bring Chinese art and culture to other peoples in ways that appeal to their taste. These efforts include exchanges in science, technology, and education for

10.1 China’s Path of Peaceful Development

161

the progress of human civilization without infringement upon intellectual property rights; initiatives to protect and preserve China’s history and traditional culture and introduce them to the rest of the world for the promotion of mutual understanding; and discussions about the philosophies and world views of Confucianism and other schools as well as religious ideas in China. All these efforts can contribute to mutual understanding between different cultures and civilizations across the world as well as their peaceful coexistence.

10.1.3 Key Objectives in China’s Path of Peaceful Development As a member of the world family, China hopes to develop its economy and modernize itself through its relations with all the other countries in the world. Because of this, apart from its own course of development, China has a path of peaceful development that is closely related to the rest of the world. Generally speaking, China’s path of peaceful development means that, during the transition from an under-developed state to a developed one, i.e., the primary stage of socialism, apart from adhering to the ideal of socialism with Chinese characteristics and never exporting ideology, China will promote cooperation in economic development, refrain from seeking political or military hegemony, reducing negative externality effects on the global ecological environment, and try to bring about common development and prosperity through equal dealings, friendly relationship and win–win cooperation with other countries. More specifically, the following six major objectives are involved:

10.1.3.1

Promoting Reform and Opening up at a Higher Level

We have already discussed what is to be reformed in China’s course of development. Here we will examine reform and opening up as part of China’s path of peace from the perspective of foreign relations. It has been thirty-two years since the beginning of reform and opening up in 1978. During these years, opening up has facilitated the process of domestic reforms. For instance, to meet the needs for foreign investment, China made and promulgated the Law of Limited Liability Company in the early 1990s, which marked the formation of a modern corporate system for market economy. Since tremendous changes have taken place in the situation both domestic and international over the past three decades, there is a need to bring China’s reform and opening up to a new level. Opening up will show the following trends in the future: firstly, the structure of trade and the division of labor will change. It is almost time to terminate the strategy of sanlai yibu (assembling of supplied parts, processing of supplied materials or

162

10 Peaceful Development and National Rejuvenation

according to supplied samples, and compensation trade) and export-oriented development, which needs to be replaced by a domestic demand-oriented economy. With the growth of domestic economy and the increase of people’s income, there is a need to replace industrial equipment and part of the consume goods with imported machinery and items, open the market more to the world, attract more foreign tourists to China, and extend more of China’s service industry to the rest of the world. Secondly, China needs to seek more regional cooperation and, in particular, create bilateral and multilateral free trade zones, including the Northeast Asia FTA, the China-ASEAN FTA, the Central Asia FTA, and the more extensive Pacific FTA. Opening up at higher levels will be conducted regarding the promotion of mutual investment, mutual facilitation of trade, and the internationalization of the RMB. Efforts to adapt to such opening up at higher levels will further accelerate domestic economic reforms. Firstly, the system of laws and regulations for the protection of intellectual property will be strengthened, open and just procedures of judicial protection will be formulated, and social and judicial processes for appeal, mediation, litigation, arbitration, compensation, enforcement, and supervision will be refined. Secondly, the system of production and service standards will be better developed, refined and applied to accreditation by a combination of enterprises, professional organizations, and the government. Standards shall be set that can reflect and enhance the technological level of Chinese industries, based on the consideration of the current levels of production and service at home, and geared to the demand for approaching the higher levels abroad. Thirdly, the systems for administrative approval, licensing and law enforcement will be reformed, and administrative laws and regulations that are at odds with the demands of opening up will be abolished, along with unnecessary procedures of administrative approval, licensing, and annual check-ups, so that the economic management system will be brought in line with today’s international market economy. Fourthly, laws, regulations, and administrative and judicial procedures must be just, open and transparent. Special protection and preferential treatment of state-owned enterprises will be gradually reformed, and industries open to foreign capital will also be open to private capital at home in order to promote equal competition between foreign investors, SOEs, and other types of enterprises.

10.1.3.2

Never Seeking Economic Hegemony or Aggression

In economic contact and cooperation with other countries, China will adhere to the principles of market economy and seek bilateral and multilateral win–win results in international investment, trade, division of labor, and collaboration. It will never assume the posture of a great power in its economic dealings and will never engage in economic aggression. China will create an open, fair and just trade environment for bilateral and multilateral trade featuring the protection of property rights, uniform rules, agreements, and exchange at equal value. Firstly, in future development, China will be unequivocally opposed to investment and trade protectionism. For instance, it is against the abuse of anti-dumping and industry injury investigation, excessively high

10.1 China’s Path of Peaceful Development

163

production and service standards, and other non-tariff barriers, as well as practices that are detrimental to free trade and investment such as unilateral imposition of carbon emission taxes. Secondly, regarding investment in the domestic market, China will give discrimination-free national treatment to capital so that there will be fair competition between domestic and foreign investment in the Chinese market, which will help to enhance managerial and technical levels for both sides. Thirdly instead of taking extreme measures in response to trade and investment-related disputes, China will conduct bilateral negotiations aimed at the reaching of consensus. Then it will seek arbitration or decision by a neutral international organization such as the WTO. For malevolent acts of trade protectionism that fails to be checked by bilateral negotiations or international arbitration, China will only take temporary and in-kind retributive measures to protect its national interests and prompt the other party to resume the observation of the proper trade and investment rules. In bilateral and multilateral trade and investment, apart from considering its own interests, China will take into account the economic interests of other countries, especially developing ones, regarding their long-term and sustainable development, in order to achieve bilateral and multilateral win–win results. Each country has its own economic strengths and natural endowments in terms of resources. China abides by the principle of comparative advantage, equality, and mutual benefit in its participation in the world economy in order to bring about a situation of reasonable division of labor and collaboration. While cooperating in trade and investment with other developing countries in Asia, Africa, Latin and the USA, China also hopes to help them establish an industrial structure suited to their national conditions. In particular, some under-developed countries are expected to form their own mechanism for the sustainable development of their economy. Besides, China stresses support to countries it has economic cooperation with, especially underdeveloped ones, in education and health care, in order to help them acquire constantly increasing human capital for their economic growth. In its economic contacts with other countries, China aims at win–win results in the increase of trade and investment, in tax revenues for the government, profits for businesses, and wages for employees, and in bilateral protection of the ecological environment. In bilateral and multilateral economic cooperation, China will not take advantage of its status as a great power to conduct armed or economic aggression. “Power economy” means economic contact going against the principle of exchange at equal value, equality, and mutual benefit, which is imposed by a big and strong economy in its bilateral or multilateral economic cooperation with other countries. Although without armed infringement upon another country’s territory, economic aggression involves the plundering of its resources, along with a demand for unequal access to its market, by illegitimate means and with threat of the use of force. In its bilateral and multilateral cooperation, China emphasizes the protection of property rights, market demand and supply, and the principle of equal value. It will not make special rules serving its own interests as a domineering great power; in particular, it will never force any other country to open its market in order to plunder

164

10 Peaceful Development and National Rejuvenation

its resources. In bilateral and multilateral economic cooperation in various regions, rules should be made through equal negotiation between all the countries, none of which should impose its will on other countries or seek economic hegemony just because it is bigger and stronger.

10.1.3.3

Reducing the Negative Externality of China’s Industrialization on the Whole World

China has a population of over 1.3 billion, which is growing toward 1.4 billion. The raising of their living standard will no doubt consume more resources and put greater pressure on the environment. As a result, the rest of the world is much concerned about the impact of China’s future development on the global resources and ecological environment. How to deal with such impact forms a crucial part of China’s course of development. First of all, it should be noted that, in the next three decades, the industrialization of China will still necessitates the consumption of more resources and increase the total emissions. Otherwise, China would never approach the level of a moderately developed country, and the people would also be dissatisfied by the permanent gap between their living standard and that of the citizens in developed countries. Secondly, despite challenging task of future development, China will take an active part in discussions about climate, resources and other global issues with multilateral and international organizations, set emission and consumption standards, and commit itself to maximum efforts for energy-saving and emission restriction. Thirdly, China will try to make a substantive reduction in the impact of its development on global resources and ecological environment through ratio and total quantity control, technological progress, industrial restructuring, the increase of forest coverage, changes in the mode of development and living, and price and tax reforms. In a word, it will be a responsible major country in this respect.

10.1.3.4

Promoting Exchange in Science, Technology, Education, and Culture

While refraining from exporting ideology during its future development, China will take an active part in and contribute to exchanges in science, technology, education, and culture between various countries and regions. While adhering to socialism with Chinese characteristics, China has incorporated elements of civilization the world has acquired over the past centuries, including

10.1 China’s Path of Peaceful Development

165

equality, liberty, democracy, order, and the rule of law. Within the institutional framework of socialism with Chinese characteristics, China has drawn upon political institutions such as open and transparent budgeting, which have been developed in other countries, including capitalist ones. Regarding technology, China invented paper-making, the compass, gunpowder, and the moveable type, which were spread throughout the rest of the world by Zheng He’s journeys to the Western Oceans and the Silk Road, propelling the progress of human civilization. For education, China also invented a relatively fair system of imperial examinations. However, to be honest, China lagged behind the West in science, technology and education for over three centuries since the turn from the Ming to the Qing Dynasty. Toward the end of the Qing Dynasty, there emerged a Westernization movement in China as “new learning” from the West became popular. During the Republic Period (1911–1949), mathematics, physics, and other branches of knowledge were introduced from the West along with college education and largescale industry. After the founding of the PRC, we incorporated certain practices for college education and industrial technologies from the Soviet Union and other countries. Since the advent of reform and opening up, we have introduced more upto-date technology from many other countries and improved college education both in terns of institutions and the system of knowledge. During the last twenty years of the twentieth century and the first decade of the twenty-first century, China was one of the beneficiaries of global exchanges in science, technology, and education. China will maintain an open-minded attitude toward civilization. While strictly protecting intellectual property, China will continue to introduce and draw upon advanced science, technology, and other knowledge from other countries, applying them to its modernization. On the other hand, China will help other developing countries by offering them certain technologies it has mastered on favorable conditions and promoting programs for scientific and educational exchange between governments and between private sectors. In addition, while protecting property rights and protecting equal transactions, China will exchange with other countries industrial technology and cultural products in order to propel the progress of civilization through sharing. The Chinese civilization, which has developed into a profound national culture, has existed for thousands of years. It consists of a wide range of cultural elements that include values, codes of conduct, the philosophy of yin, yang and the Five Phases (wuxing), Traditional Chinese Medicine, ethnic customs, ethnic paintings, music, Chinese operas, traditional architecture, and Chinese cuisine. Apart from preserving these fruits of civilization left by our ancestry, the Chinese nation needs to share them with other nations around the world. Religion also forms an essential part of human civilization. China should abide by the principle of the separation of political faith from religious faith, and politics from religion. There shall be no religious intervention in politics. The spread and practice of religion should be lawful, and the freedom of religious belief should not be infringed upon. In particular, to maintain social stability, China needs to crack down on any attempt to spread or practice religious extremism and terrorism, which is often associated with the former. However, in international exchanges related to

166

10 Peaceful Development and National Rejuvenation

religion, China should respect the freedom of religious belief, encourage the practice of such religious doctrines of doing good deeds, eliminating evil and helping others, and make full use of the active role of religions in the building of a harmonious society of socialism with Chinese characteristics.

10.1.3.5

Undertaking Our Due Share of Global Responsibilities and Obligations

In the future, in international relations, China will not only protect its own interests, but also undertake its due obligations as a responsible major country. First, China has taken an active part in the formulation of global initiatives and rules for the maintenance of world peace, the narrowing of gaps in development, poverty relief for all humanity, and the protection of global environment. During the climate conference in Durban toward the end of 2011, instead of considering China’s interests only, the Chinese representatives tried to balance all interests from the perspective of environmental protection for all humanity and bridging the gap between developing countries and developed ones, promoting cooperation and negotiation with a responsible attitude until the reaching of the Durban consensus with the representatives of other countries. Throughout its development in the twenty-first century, China will maintain this attitude while considering how to strike a balance between its own development and the interests of all humanity, be a responsible major country that spares no effort to fulfill its global obligations, and contribute to the making of rules and decisions. Secondly, China will strictly and conscientiously follow the resolutions reached by the United Nations and other world organizations through universal voting. Regarding such world affairs as counter-terrorism, peacekeeping, assistance to underdeveloped countries, poverty reduction, emission and pollution control, the protection of biodiversity, the elimination of trade protectionism, and joint efforts in response to global economic crises, China will spare no effort to accomplish its due share of tasks with an unreserved commitment of human, material, and financial resources. Thirdly, apart from strictly and conscientiously fulfilling its global obligations according to international consensus, China will, to the best of its ability, take the initiative in providing one-to-one or one-to-many assistance to underdeveloped countries in Africa, South Asia, and other regions regarding the promotion of economic growth, the development of industry and commerce, the narrowing of North–South gaps, reducing extreme poverty, raising educational standards, and improving sanitary conditions. In 2010, Premier Wen Jiabao announced China’s voluntary assistance to other developing countries for the well-being of their people in six aspects— reducing or writing off the debts incurred by the least developed countries, deepening financial cooperation, continuing to offer loans on favorable terms and financing support in terms of export buyer’s credit, expand trade and economic relations, intensifying agricultural cooperation, and assistance in the development of human resources. Since 2006, the Chinese government has written off a total of over 20 billion yuan of debts incurred by African countries. In February 2010, the State

10.1 China’s Path of Peaceful Development

167

Council approved the decision to write off 80% the debts incurred by Iraq, which amounted to about USD 6.8 billion.1 Fourthly, in its future development, China will strike a sound balance between national interests and global interests, undertaking more obligations and responsibilities for the interests of the whole world and all humanity. For instance, as mentioned before, regarding the relationship between its development and global environment, China will take a series of measures to reduce the negative impact of the former on the latter as much as possible in order to ensure the sustainability of resources in a good ecological environment.

10.1.3.6

Peaceful Coexistence with the Rest of the World Without Seeking Hegemony

China will help to improve consultative democracy in the United Nations, for it is a maxim of international politics for all countries, large or small, to have dialogues on an equal footing and resolve disputes through negotiation. China will help to build a system of democratic governance through the UN featuring a distribution of seats in proportion to the populations of various countries. Instead of seeking political dominance by great powers, China will promote the establishment of a new international political order and respect the roles of the UN and other international organizations in the management of global affairs so that a rational, just and open structure of global governance can come into existence. China will never seek hegemony or threaten any other country with force. Its armed forces only serve to defend its national security and maintain world peace. History shows that the Chinese nation is a peace-loving one. Since the founding of the PRC, China has settled a series of disputes with many of its neighboring countries. In the future, China will have no intention to seek hegemony in the world. Its armed forces will be used for the defense of its territory and fight against terrorism, military check, and balance between major countries, the protection of the security of transport routes, and the fulfillment of its obligations for world peace as per UN resolutions. Nevertheless, China will make no concessions regarding its essential national interests and will not rule out the use of force if negotiations prove to be futile. Such interests mainly include the prevention of national division, the reunification of the Chinese mainland and Taiwan, and the security of the Diaoyu Islands, the Nansha islands, the islands in the South China Sea, and other border areas, about which there is no room for negotiation. For territorial disputes, priority will be given to peaceful resolution. However, the use of force will be considered in response to blatant infringement upon Chinese territorial land or waters.

1 “China’s

Yet Another Major Debt Relief Campaign, with Over 20 Billion Written Off for African Countries”, South Weekend, Sept. 23, 2010.

168

10 Peaceful Development and National Rejuvenation

10.2 The Great Rejuvenation of the Chinese Nation With a steady growth in both economy and people’s living standards, the GDP of China, as one of the world’s most populous countries, is bound to replace that of the USA as the largest in the world. Meanwhile, the great rejuvenation of the Chinese civilization will be achieved. These will take about thirty years, and the process will be an arduous journey in terms of international relations, geopolitics, trade and investment, the international monetary and financial system, and cultural exchange with other countries. Anyway, however, thanks to the enormity of China’s economy and the greatness of its potential for growth, China’s peaceful rise and the rejuvenation of its civilization will be a significant chapter in human history and a trend that no force can resist. The evolution of any nation or civilization can be divided into various historical stages. Like a person, an economy may also have its infancy, childhood, adolescence, youth, the most robust years, middle age, old age, and twilight years. Industry and military affairs play a predominant role in a nation’s development, and they are based on economy and technology. Technological progress, in turn, depends on growth in economic strength. Therefore, economic strength is vital to the development of a nation and serves as a prominent indicator of the stage of development. As we lift our eyes toward the future, we may divide China’s road of revival into three decade-long stages—the hard times (2013–2020), vigorous development (2021–2020), and the great rejuvenation (2030–2040).

10.2.1 The Most Difficult Eight Years (2013–2020) 2013 marks the toughest stage of the 12th Five-year Plan, which in turn will be the beginning of the eight most difficult years in China’s road of revival. We will be facing all kinds of domestic pressure as well as challenges from the international community, while trying to accomplish the tasks for reform and development.

10.2.1.1

A Complicated International Environment

The past few years have been a steady escalation in China’s territorial disputes with Japan, South Korea, the Philippines, Vietnam, and other neighboring countries in the East China Sea and the South China Sea, which have had a direct impact on trade and economic cooperation. China–US relations are heading toward a delicate situation marked by frequent diplomatic frictions. There have also been trade wars between China and the EU, the USA, and other emerging developing countries. How to break out of the encirclement and sail through this period of frictions is an important challenge in China’s foreign relations.

10.2 The Great Rejuvenation of the Chinese Nation

169

As mentioned before, economy is fundamental to military, foreign and geopolitical affairs. The world’s economic situation is such that, regarding US dollar-priced GDP in 2011, the USA has reached 15.08 trillion, or 21.57% of the world’s total GDP, which gives it an absolute advantage over any other country; China ranks the second in the world with a GDP of over 7.3 trillion; and Japan has a GDP of 5.78 trillion. Although China’s GDP was roughly the same as that of Japan in 2010, a distinct gap is now visible between the two. Among China’s neighboring countries, Russia has a GDP of 1.85 trillion and India has 1.83 trillion; among other BRICS countries, Brazil has 2.49 trillion and South Africa has 4.09 trillion.2 In the long run, if China can maintain relative stability during its social and economic development, a significant change will take place in the world economic situation in the next decade. China will gradually catch up with the USA in GDP and the size of economy. By 2020, the US’s GDP might reach USD 19.67 trillion, still ranking the first in the world; by a conservative estimate, assuming China’s annual growth rate is 7.2% and the RMB appreciates by 30%, China’s GDP will be USD 17.74 trillion (double the size of 2010 GDP), falling short of the USA’s by about USD 2 trillion. By an optimistic estimate that assumes an annual growth rate of 7.6% and a 40% appreciation of the RMB, China’s GDP will be USD 19.75 trillion, which will be equal to the USA’s. By then, Japan’s GDP will be around USD 7 trillion, i.e., less than half of China’s. India’s GDP will be over USD 4 trillion, Russia’s will be about USD 2.8 trillion, and Brazil’s will be about USD 3.5 trillion. China’s economic strength will be on a different order of magnitude from these countries’. Therefore, the eight years between 2013 and 2020 will witness significant changes in the relative economic strengths of great powers. So long as China can seize the opportunity, it will certainly gain an advantageous foothold in this changing situation. However, in order to do so, China must properly deal with its relations with the USA and with its neighboring countries.

Putting China–US Relations into Perspective (2013–2020) The next eight years will mark a most crucial period for the development of China’s economy and national strength. A comparison between China and the USA in economic strength and degree of maturity would show that, a present, China is in adolescence, whereas the USA is in its middle age. China is still no match for the USA in economy, technology, and military strength. The next eight years will mark a transition from adolescence to youth for China, and from middle age to old age for the USA. During this period, China’s manufacturing industry will continue to expand and its structure will be further upgraded; China’s tangible goods trade will rank at the top in the world, and the RMB will become more and more international; human capital will grow in scale and improve in quality, with the contribution of technological progress to economy increased to 60%; the RMB will appreciate by 2 EU countries like Germany, France, Britain, and Italy are omitted due to their geopolitical distance

from China.

170

10 Peaceful Development and National Rejuvenation

30–40% vis-à-vis the US dollar. Optimistically speaking, China will be on a par with the USA in the size of economy in eight years. By that time, since China will still be on the rise while the US pace will slow down, there will be a young China facing an aging the USA. In “Can China Rise Peacefully,” Martin Wolf, a commentator forFinancial Times, observes three possible trends in China–US relations that might result from the rise of China: firstly, the acceptance of the positive-sum view, i.e., both agree that there is no profound ideological conflict between them (no signs of this are observable at present); secondly, the dominance of the negative-sum view, i.e., competition for dominance between an old great power and an emerging one, which may even give rise to a US-led alliance for the containment of China; thirdly, a mingled scenario, with globalization coexisting with worldwide cooperation and a typical balance of power becoming more and more important—which is essentially the same as the situation before WWI.3 Much as we expect the future China–US relations to fit the first scenario, there is little cause for optimism regarding the current international situation as well as the attitude of the USA and other countries toward China. In the opinion of the American scholar John Mearsheimer, China will not realize its dream of peaceful rise, which will be checked by an alliance made up of the USA and China’s neighboring countries. Based on the opinions of relevant research, another scholar named Peou also argues that, though the Chinese leaders might have no intention to offend any other country, they cannot guarantee that there would be no offence from them, for it is very difficult to build mutual trust between China and its neighboring countries. So far as its national interests are concerned, the USA would not be ready to accept the existence of another great power that is equally strong in economy and other aspects, which might pose a threat to its leadership. According to Samuel Huntington’s theory about the “clash of civilizations,” conflicts between nations will arise from differences between the East and West in religion and culture. In my opinion, however, apart from the “clash of civilizations,” such conflicts essentially involve national interests because they are fundamentally due to the unequal distribution of interests among countries around the world. Secondly, regarding ideology, the USA has always opposed terrorism, Nazism, and communism. As a result, it is bound to see the rise of China as a symbol of a worldwide revival of the communist ideology. Thirdly, American culture is based on Christianity, a monotheistic and exclusive religion. In China, Confucianism coexists with Buddhism and Taoism, along with Islam and Catholicism, and the communist party is atheistic. Such are the remarkable differences between the landscapes of faith in the two countries. Lastly, in terms of political system, the USA is a country that believes in such ideals as democracy, liberty, equality, and fraternity, with a multiparty system, general election for choosing the president, freedom of the press, and nationalized armed forces. In contrast, China has an authoritative government and a society of people’s democracy under the CPC’s leadership. In the opinion of the American scholar Ho, China could hardly build real trust with the rest of the world and develop its soft power if it were 3 See

https://www.ftchinese.com/story/001035645.

10.2 The Great Rejuvenation of the Chinese Nation

171

confined to the mindset that focuses on economy only while caring little about human rights. Similarly, Peou believes that genuine mutual trust between China and the international community would be impossible to achieve unless the former becomes a Westernized democracy. In my opinion, however, national interests are more important than ideology in China–US relations. In other words, if the two countries could reach a consensus on ideology some day, there will still be no way to avoid games involving national interests. The situation would be similar to the relations between China and the Soviet Union, which deteriorated into fierce antagonism for a time due to their respective national interests despite the communist ideology they shared. In view of these four aspects, the USA will certainly pursue a strategy of preventing China from rising and thriving in the next eight years. Its national interests and international relations strategy will compel it to be prepared for both war and peace—two extremes with numerous combinations in between. Should there be a war between China and the USA, though the outcome is unpredictable, both sides would have to pay an enormous price and suffer catastrophic consequences. It is possible that China and the USA might reach a tacit agreement that allows the USA to maintain its global leadership so that both countries could enjoy peace and avoid all the conflicts, costs and disasters. However, the USA might use diplomatic means to stoke China’s territorial disputes with such countries as India, the Philippines, Vietnam, and Myanmar, so that China’s strength might be sapped and the country might be contained and divided while its economy is still in adolescence. This would prevent China from becoming a rival that is equally, if not more, powerful. This strategy is in line with the US national interests. Regarding interstate economic strategy, the USA’s will shift its economic focus toward the Asia–Pacific, taking an active part in and leading regional cooperation (such as TPP), in which it will seek rulemaking influence and power, while gaining wider access to emerging markets for closer trade and investment cooperation with the region. The USA may also challenge China on the strength of the US dollar’s status as a global reserve currency. In a word, it will maintain and increase its influence on the Asia–Pacific, where it will compete with China for regional leadership. Based on a clear understanding of the US attitude and policy toward China in the next eight years, we must take the initiative in getting prepared in every way. First of all, in view of the current disparity in strength, China should try to avoid direct military clashes with either the USA or any other country under its influence. However, China should also flex its muscles when necessary to deter certain small countries that want to fish in muddled waters, for the time has gone forever when we could keep a low profile. Secondly, we still need to highlight the win–win results of economic cooperation with China and make certain countries realize that they would lose more than they could gain from an alliance with the USA, so that the latter could not form a stable regional alliance for the encirclement of China. Thirdly, we also need to take the initiative regarding the making of rules for regional economic cooperation frameworks and on international occasions for climate and environmental talks. On the one hand, we should try to enhance our right to speak; on the other hand, we need to take the USA down a peg or two at appropriate times. Finally, we should actively spread Confucianism-oriented Chinese thoughts to the rest of the world

172

10 Peaceful Development and National Rejuvenation

so that the philosophical ideals of “harmony of diversity,” pluralism and multipolar development could be accepted and mutual confidence could be gradually established between China and the international community.

Other Countries and Regions: Interests and Games (2013–2020) According to Thies, though China will become an increasingly important responsible major country in Asia and the whole world, military conflicts will be inevitable in this process. Peou also believes that China’s neighboring countries may follow a sustained policy that mingles trade and economic cooperation, counteraction in regional strategy, and balance-seeking in international politics. This opinion may serve as a largely apt description of the future situation of China’s neighboring countries. Regarding China’s relations with its neighbors, the greatest caution needs to be exercised in dealing with Japan. In terms of relative economic strength, the two countries were roughly on a par in 2011; by 2020, however, the Japanese economy can be equivalent to less than 40% of China’s. With respect to economic relations, Japan has made massive investments in China since the beginning of the reform and opening up, with a large number of industries transferred to China. At present, there is a trade surplus in favor of Japan. In the next years, the China–Japan–South Korea Free Trade Zone will probably be established, generating increasingly close economic ties between the three countries, if their relations are properly handled. However, Japan’s aggression against China during WWII has left a lot of grievances that are difficult to resolve. Regarding political and military relations in the next eight years, Japan is very likely to perceive the rise of China as a threat, which will fuel the rise of rightist forces, and forge an anti-China alliance with the USA or other countries that are potentially hostile to China. In particular, the disputes over the Diaoyu Islands and the surrounding isles and waters are and will continue to be a major thorny issue in China–Japan relations. Behind the Diaoyu Islands issue is a fundamental bone of contention—the contest for leadership in East Asia. There also exists ample room for regional cooperation as well as common economic interests between China and Japan, which can exploit their shard markets through industrial division of labor and collaboration. In particular, the enormous and steadily growing Chinese market will be a powerful engine for saving the Japanese economy from recession. Given the two countries’ comparable military strength, the consequences of direct armed clashes would be unbearable for both, not to mention that a third party might benefit from their strife. However, we must watch out for the possibility that some irresponsible Japanese politicians might push China–Japan relations to the brink of disaster. We must maintain a solemn and just stand and make our bottom line clearly understood in order to deter right-wingers from having their own way. Additionally, we still need to make possible the cooperation between China, Japan, and South Korea for the creation of a FTA and a currency swap zone, which would help China–Japan relations to return to normal in the future.

10.2 The Great Rejuvenation of the Chinese Nation

173

India and Russia are two great powers adjacent to China. Between 2012 and 2020, with a population growth rate next to zero, Russia will have difficulty adjusting its economic structure and a shortage of domestic demand, which would mean a mild pace of economic growth. In contrast, India’s demographic dividend is likely to translate into a high-speed growth. However, it is estimated that, by 2020, Russia’s economy will only be equivalent to 16% of China’s and India’s, 28%. Russia’s resources and China’s consumer market can be mutually complementary, which suggests a good prospect for economic cooperation. India, on its part, can receive some of the industries transferred out of China, offering a possibility of vertical collaboration along the national value chain. However, China still has some left-over border disputes with India and occasional frictions over land and sea borders with Russia. These, plus win-over attempts by the USA, the relations between China and these two countries are not totally stable and secure. Nevertheless, since both of them, like China, are at a stage for focusing on economic development, it is very likely to build mutual confidence through trade and economic collaboration, which is a common interest, plus necessary cooperation and support in other international affairs. China’s relations with the ASEAN, a regional organization of our neighboring countries in Southeast Asia, will be crucial in the next eight years. Some of the ASEAN countries, such as Vietnam and the Philippines, have land or sea border disputes with China and dread our development and rise. However, the ASEAN also includes countries that have settled border issues with us and friendly countries that are not adjacent with China. The ASEAN itself is also seeking to strike a balance in its relations with such great powers as the USA, Japan, and China. Regarding regional economic cooperation, there will be competition between the East Asia FTA and the US-led Asia–Pacific FTA. In terms of political and military relations, some ASEAN countries are following the policy of developing friendship with a distant great power (i.e., the USA) and maintaining a more aggressive or defensive posture toward a nearby one (i.e., China). However, the growth of China’s economic influence will lead to closer ties between East Asian countries in trade and investment. In addition, the RMB, whose economic status is steadily rising in the region, has begun to assume the role of an anchor currency. Cooperation with China, therefore, is generally beneficial. However, it is true that, in addition to stressing economic interests alone in international relations, China needs to play a more important role between regions and take on certain international obligations for regional stability and security. For those countries who intend to fish in troubled waters through alliance with the USA and shenanigans for the “containment” of China, we should teach them a lesson before it is too late. In this way, China will project a new image as a great power in the regional political landscape and makes a transition toward proactive diplomacy in all aspects. So far as the stages of industrialization are concerned, Europe is on the decline, having lost its competitiveness in many fields of manufacturing due to the high costs of their social welfare and industries. Besides, the next eight years will be lost for the European integration process, which is beset with difficulties. For Europe, the

174

10 Peaceful Development and National Rejuvenation

growing China will be a massive market for investment. Moreover, since they have no territorial disputes with China, the European countries are somewhat unconcerned about China’s development though they may not be quite happy about it. Therefore, China’s strategic relations with Europe in the next eight years will be characterized by increasing economic cooperation and cultural exchange, export of thought and ideas instead of ideology, and a military strategy involving development of friendly relations with distant countries and a more defensive attitude toward close neighbors.

10.2.1.2

Domestic Challenges and Formidable Tasks for Development and Reform

Apart from the complicated external environment, China also needs to cope with major difficulties, such as how to avoid the middle income trap, how to prevent social chaos during the transfer of power, and who to relieve social tensions arising from the gap between the haves and the have-nots, among other causes. Since these have been discussed in the introduction, there is no need to go into detail here. In the next eight years, China will be facing arduous tasks for reform and development. On the one hand, we need to stay firmly on the road of reform and tap the potential of the “reform dividend.” On the other hand, we need to fulfill the existing plan for economic development and lay a solid foundation for subsequent ones. Besides, adequate attention should be paid to the quality and per capita quantity of growth. The goal has been set at the CPC’s 16th and 17th National Congress that China will complete the building of a moderately well-off society by 2020. On the basis of this goal, it has been proposed in President Hu’s report to the 18th CPC National Congress that the GDP in 2020 will have doubled that in 2010. According to the Plan for Statistical Monitoring of the Building of a Moderately Well-off Society in All Aspects, the National Bureau of Statistics (NBS) has measured the extent to which the goal has been accomplished. The latest results (Table 10.1) show that, by 2010, over 80% of the tasks have been accomplished. However, it is still a great challenge to complete the rest during the next eight years. The more authoritative non-GDP measurement of development is the Human Development Index (HDI) proposed by UNDP. According to the latest Human Development Report,4 by 2011, China ranked the 101st in inequality-adjusted HDI in the world, and the 7th among moderately developed countries. The comparison between China and the world in HDI trend, based on the data in the report, is shown in Fig. 10.1. As shown in the diagram, China’s level of development as indicated by its HDI has steadily improved in the past three decades, at a higher rate than the moderately developed countries group, which it belongs to, the Asia–Pacific region, and the world average. If the current trend is maintained, China can be expected to become one of the high-HDI countries in the next eight years. 4 For

details, see https://hdr.undp.org/en/statistics/.

65.4

Resources and environment

2001

64.6

59.1

82.6

60.7

59.6

52.2

60.7

2002

66.3

60.9

82.5

62.9

57.1

54.4

61.8

2003

67.2

61.8

82.4

65.5

56.3

56.3

63.0

2004

67.7

62.2

83.7

67.7

59.9

58.2

64.8

2005

69.5

63.0

85.6

71.5

62.8

60.6

67.2

2006

70.6

64.1

88.4

75.0

67.6

63.4

69.9

2007

72.6

65.3

89.9

78.4

72.1

66.6

72.8

2008

75.2

64.6

91.1

80.0

76.0

69.1

74.7

Source NBS Research Institute: Statistical Monitoring of the Process of Building a Moderately Well-off Society in All Aspects (2011)

84.8

58.3

Quality of life 58.3

57.5

Social harmony

Culture and education

50.3

Economic development

Law and democracy

59.6

Building a moderately well-off society in all aspects

2000

Table 10.1 Building a moderately well-off society: how much (%) has been accomplished between 2000 and 2010 (%) 2009

76.8

66.1

93.1

83.7

77.7

73.1

77.5

2010

78.2

68.0

93.6

86.4

82.5

76.1

80.1

10.2 The Great Rejuvenation of the Chinese Nation 175

176

10 Peaceful Development and National Rejuvenation

China Moderately developed countries Asia-Pacific region The world

Fig. 10.1 Comparison in HDI trend, 1980–2010

However, with the demographic dividend nearly exhausted and considerable tension and pressure both at home and abroad, the current momentum can hardly be maintained if China fails to overcome the five aspects of the middle income trap discussed above, continue with the reform, and improve social equity and the social security and welfare systems for its citizens. Thirty years from its inception, China’s reform and opening up has come to a most sensitive stage. The vested interests will try to maintain their monopoly and extraordinary profits in “gray areas,” which will result in strong resistance to further reforms. In the next eight years, therefore, China needs to push ahead with reforms and complete them in spite of any possible resistance, continue to emancipate and develop productive forces, and propel political and other reforms in a stable and orderly manner, in order to attain the ultimate goal of reform.

10.2.2 The Thriving Decade (2020–2030) In another ten years, i.e., by 2030, even on the most conservative assumption regarding the speed of growth and fluctuations in exchange rates, the world economic situation will undergo significant changes. China’s economic aggregate will reach the level of USD 40 trillion, ranking at the top of the world; the USA’s will be USD 25 trillion, equivalent to approximately 60% of China’s. India’s GDP will be USD 12 trillion, overtaking Japan (approx. USD 9 trillion) as the world’s second largest economy. Russia’s GDP will be only USD 4.5 trillion, equivalent to 11% of the Chinese economy. In this thriving decade, the frictions and encirclement China is faced with will be relieved, and the international environment for development will improve generally.

10.2 The Great Rejuvenation of the Chinese Nation

177

Due to remarkable changes in overall sizes of economy and comparative strength, the world’s strategic landscape will transition from the US’s unilateral economic, political, and military hegemony toward a new situation featuring two poles (China and the USA), with the EU and other emerging countries in between. In this decade, thanks to years of industrious pursuit and down-to-earth accumulation, China will gradually catch up and begin to surpass the USA in science, technology, and economy; since these form the basis of national defense and the diplomatic right to speak, China’s strength will be greatly boosted in these respects as well. In fact, with its rival gradually overtaking itself in overall strength, the USA would have an enormous price to pay in case of a conflict or war with the big country on the western coast of the Pacific, not to mention that it might not be able to achieve the anticipated results. As a result, the USA will be inclined toward peaceful rather than bellicose options. Meanwhile, however, India will become stronger and have a relative advantage in demographic dividend and potential for development. As a result, the main threats on China’s periphery may come from border frictions with India as well as the latter’s competition and attempt to catch up with us. It will also be probable, by then, for the USA to make the strategic move of forging an alliance with India. Ten-odd years of efforts will bring into existence several free trade zones—China’s mainland, Hong Kong, Macau, and Taiwan; China, Japan, and South Korea; China and the ASEAN; and even a larger one with China at the center. China’s trade and economic relations with the EU and emerging economies will also be further developed. Wider and deeper trade and economic cooperation will not only bring more profits to the regional economy, but also lay a solid foundation for China’s economic leadership and right to speak in the region. On the basis of more intensive regional economic cooperation, the RMB will continue to go global. In addition to serving as a principal transaction, settlement and reserve currency in Asia, the RMB will also be enhanced in terms of its share among the world’s reserve currencies and proportion in the SDR, the right to vote in the IMF, and its share in the global monetary system. The RMB will be playing an increasingly significant role in the world economy while the US dollar’s importance will continue to decline. A multipolar global monetary system jointly led by the US dollar, the euro, and the RMB will gradually come into being. With the growth in economic strength, China will take more initiative in global political and diplomatic arenas, as manifested by the undertaking of more international obligations as a major country and more active participation in international affairs. China will play an important, if not leading, role in the fight against international terrorism, the protection of international shipping routes from pirates, mediation in regional conflicts and humanitarian crises, relief efforts after major natural disasters, the formulation of regional cooperation agreement frameworks, and efforts to cope with climate change. With practical endeavor, China will project an image of a responsible major country and win the confidence of all countries in the world. China’s peaceful revival will be gradually accepted by the world along with the idea of “seeking harmony while preserving differences.” By 2030, when China’s will be the world’s largest economy, it will still rank in the middle in terms of per capita indicators. As far as the HDI ranking is concerned, there

178

10 Peaceful Development and National Rejuvenation

will remain much room for improvement though China will have become one of the more developed countries. In this respect, China will not be at the top of the world yet. Nevertheless, the thriving decade will have saved China from the middle-income trap and laid a solid foundation for the next decade.

10.2.3 The Great Rejuvenation of the Chinese Nation (2030–2040) The ten years between 2030 and 2040 will see the great rejuvenation of the Chinese nation in the fullest sense. By then, China’s economy will be worth at least USD 80 trillion, whereas the US economy will be worth USD 30 trillion, India’s, USD 26 trillion, and Japan’s, USD 10 trillion. China will not only be securely on top of the world in the size of its economy, but its rankings in per capita indicators will also attain a mid-to-high level in the world and be on a steady rise. The RMB will become of the world’s main reserve currencies. By then, the gap in strength will be so great that war will cease to be an option for the USA, and a new stage will be ushered in for China’s relations with other Asian countries and emerging nations (Table 10.2). The exchange rates between the currencies of China, India, and Indonesia and the US dollar are expected to rise by 30% between 2011 and 2020, by 20% between 2021 and 2030, and by 10% between 2031 and 2040; the exchange rates between the currencies of South Africa and Mexico and the US dollar are expected to rise by 20%, 10%, and 5% in three stages, respectively. Calculations are based on data from Table 10.2 GDP Growth Forecast for Some Countries Country

2011

2012–2020

GDP

Rate (%)

2021–2030 GDP

Rate (%)

2031–2040 GDP

Rate (%)

GDP

EU

13.1144 2.0

15.6730 2.0

19.1053 1.5

22.1724

the USA

15.0757 3.0

19.6703 2.5

25.1797 2.0

30.6939

China

7.2982 7.2

17.7382 6.6

40.3332 6.0

79.4536

Japan

5.8665 2.5

7.3265 2.0

8.9310 1.5

10.3648

Brazil

2.4929 4.0

3.5482 3.5

5.0051 3.0

6.7264

Canada

1.7390 3.5

2.3700 3.0

3.1851 2.5

4.0772

Russia

1.8504 5.0

2.8706 4.5

4.4579 4.0

6.5988

India

1.8268 8.5

4.9489 7.5

12.2397 7.0

26.4851

Australia

1.4869 3.0

1.9401 3.0

2.6073 2.5

3.3376

Mexico

1.1540 3.0

1.8068 2.5

2.5441 2.0

3.2563

South Korea

1.1163 3.5

1.5213 3.0

2.0445 2.5

2.6172

Indonesia

0.8465 6.0

1.8591 5.5

3.8107 5.0

6.8279

South Africa

0.4087 4.0

0.6980 3.5

1.0831 3.0

1.5284

10.2 The Great Rejuvenation of the Chinese Nation

179

the IMF, World Economic Outlook Database, October 2012; all the GDP figures are in US dollars at the current worth. The highly developed material wealth will be accompanied by equally first-rate cultural achievements and ethical standards as well as advanced education, science and technology. China will become one of the world’s most advanced countries in terms of both education and technological competitiveness. Years of arduous struggle will eventually bring about the great rejuvenation of the Chinese nation. A new height will also be attained after 2040 in the well-being of the people, who will enjoy a good living ensured by a fair distribution of income that is not without incentives as well as appropriately well-developed health care and welfare systems. In fact, China may become one of the most developed countries in terms of the HDI. Thanks to the importance attached to the ecological environment and the advocacy of eco-friendly economy and sustainable development from the beginning of the three decades, China will no longer develop itself at the expense of the environment. Instead, development will contribute ecological improvement across China. By 2040, China will be as beautiful as it is wealthy, so that a clean and pleasant environment can be enjoyed along with all the modern comforts. By 2040, China will have acquired a modern political system with a civil society suited to its national conditions. Under the CPC’s leadership, democratic collectivism will be further developed, the People’s Congress and the Political Consultative Conference will be greatly improved as institutions for participation in the deliberation and administration of state affairs, and the policy-making processes will be more transparent; popular election and autonomy will be in place at grassroots levels, the rule of law will be effective in all aspects of society, the news media will genuinely serve for supervision by public opinion, the citizens’ freedom of speech will be fully protected and respected, and their political literacy will have attained a very high level. By 2040, a great rejuvenation will have been achieved for Chinese culture and the Chinese civilization. Based on Confucianism and incorporating modern ideas, the new Chinese culture will be introduced to the whole world and be widely accepted. The Chinese civilization, whose influence will once more reach every corner of the earth, will contribute to the future of humanity along with other civilizations in the world. The ten years between 2031 and 2040 will see the full rejuvenation of the Chinese nation. China will have a far greater overall economic strength than any other country. It will rank among the world’s top five in technological competitiveness, and leap into the world’s front ranks in terms of per capita development indicators. However, China’s growth in strength will not be followed by any attempt at hegemony. Instead, the Chinese nation, while defending its interests, will take on its due share of international obligations, speak with a firm voice on important international affairs, and coexist with the rest of the world in peace. By then, China will be universally acknowledged as a responsible world power. Today we enjoy favorable conditions for development, which will last in the future. However, we also face a complicated international environment and have

180

10 Peaceful Development and National Rejuvenation

many problems to solve at home. The memories of the glory and decline of China— of how it was bullied in the modern times, as well as the chronic weakness of its economy, urge us to revive our nation in the twenty-first century. That is our dream for a wealthy and strong China. In the next three decades, the whole nation must unite in overcoming the challenges and pushing ahead with innovation, reform, and construction; regarding foreign affairs, we should defend national sovereignty with dignity, make correct judgments, and pursue a course of peaceful development through active and win–win cooperation. Our generation will try to leave this country as a sweet home to future generations and makes China one of the most peaceful and prosperous nations in the world—a nation to be respected by the international community. Many years later, when history is written by a future generation, they will observe that, in the first half of the twenty-first century, there was a generation that was worthy of our remembrance and admiration. Here lies the hope that motivates all the endeavors of this generation.