C Gopinath

Unable to deal with the Dragon

C. Gopinath | Updated on February 14, 2011

The basics have not changed with Mr Hu's Washington visit. China's growing economic and military might are a cause of angst to the US.

Mr Hu Jintao, China's President, completed a visit to Washington that was full of pomp and glory, and served to remind the Americans that important issues remain on the table. A few days earlier, the US media prepared the public for his visit with articles and reports that ran the gamut from the scary to the benign about China's influence in the world.

The timing of Hu's visit couldn't have been better. China had just announced that its economic growth in 2010 was 10.3 per cent (up from 9.2 per cent in 2009), establishing its importance in the global economy, where it is already the world's second largest, surpassing Japan last year.

Several issues in US-China relations are a source of angst to America. One that remains unresolved is currency valuation. For an economy of China's size, this has global consequences. Some estimates place the yuan as 40 per cent undervalued. That drives Chinese exports and continues to build large surpluses, while other countries continue to suffer from high unemployment and an inability to match Chinese prices.


One domestic effect of China's artificial exchange rate is going to be inflation, which has already started to rear its head. China is trying deal with it by restricting credit rather than allowing the currency to appreciate which, of course, keeps its exporters happy. The Chinese have proven to be adept at managing their economy and their success at keeping their currency devalued for so long, in spite of gloomy predictions is surely one for the textbooks.

China's export machine does not seem to be abating although the rest of the world still hopes that domestic consumption would rise and allow China to be a good market as well, and not just a source of supplies.

Large US manufacturers who, in the early eighties, shifted their sourcing to China, provided the initial boost to the Chinese economic miracle of today by providing the investment, the market, and the technology. But many of these same companies have been perturbed by the current Chinese push to give preference to ?indigenous innovation'. This policy was a veiled attempt to give preference to Chinese technology companies in the case of large government procurement contracts. Mr Hu, during his visit, seemed to indicate that this preference will be given up.

China has had a successful policy of getting foreign companies to transfer technology to Chinese companies who then have a free hand to use the same technology through a subsidiary. Miraculously, although US companies have known this for long, yet they rush to invest in China hoping to earn their returns in the short term before their partner becomes their rival.


China also continues to build its military muscle. Here again, it chose the timing of its displays well. It tested its stealth J-20 combat aircraft just as the US Defence Secretary, Mr Gates, was in Beijing for meetings a few weeks earlier. As US historian Mr Paul Kennedy stresses, a successful superpower builds both its military and economic strength, with one feeding off the other.

So, GE signing a new joint venture with a Chinese government company for aircraft avionics that may well fall under the dual-use technology category may be seen as one more piece of the super-power puzzle moving into place, building economic and military interests.

The core problem of how to deal with the dual economic and security issues persists in the US-China relationship. America likes China as a market for its products and a source of its manufacturing needs. But it is uncomfortable with China's growing military might and assertiveness in dealing with neighbours on security issues, many of whom are US allies.


Unlike in China, where the economic and security decisions are made by one party and the government, in the US, the government worries about the security decisions while the private sector makes the economic ones. Every time the US government wants to take a tough stand, the US private sector, which has profitability goals and not national interests, checkmates the government, through its strong lobbying. Thus, US response to China continues to be muddled, as against the Chinese machine focused on global dominance.

The one issue that both sides politely side-stepped during this visit of Mr Hu is that of human rights. President Mr Obama chose to remind Mr Hu that he needed to make progress on human rights within China. Surely, Mr Obama was conscious of the irony that as the 2009 Nobel Peace Prize winner, he was warmly welcoming the head of the government that keeps the 2010 Peace Prize winner behind bars.

Mr Obama's token comment received a token response, with Mr Hu acknowledging that progress needed to be made. And, thus everyone was happy that the matter of human rights was dealt with appropriately and they could get back to signing $45 billion (Rs 2,02,500 crore) worth of business deals. Meanwhile, the Tibetans who were crying hoarse outside the White House were kept at a safe distance. The Congresswoman from California and former speaker, Ms Nancy Pelosi, to her credit, is reported to have raised the Tibet issue at closed-door meetings.

And Mr Hu would have stayed true to script and replied that the Tibet issue was one of territorial integrity and an internal one. If Mr Hu was in the habit of reading the newspapers, he would know that the Dalai Lama was not questioning territorial integrity, but only seeking autonomy in language, culture and education matters.


As China continues to ?peacefully rise' (their phrase), the leadership has consciously built a strong base of nationalism amongst the people (as different from patriotism), feeding on myths of past wrongs done to them by the world. This, combined with their discipline and strong work ethic, makes China a force to reckon with in the future, and even the US doesn't seem to be sure of how to deal with it.

Mr Hu kept stressing, in various forums, the cooperative partnership between the two countries based on mutual respect. He also stressed that China would never seek hegemony nor pursue expansionist policies. On the other hand, one comment in a discussion forum in the online paper ? China Daily' is typical of what appears locally.

The writer argued that China had been ?oppressed and humiliated for so long' and that it's time had come. The writer felt that China will not just be a superpower but a ?megapower,' five times bigger and more powerful than America, and that the Chinese language will be ?the most used international language'. The world is still not sure which vision will prevail.

(The author is Professor of International Business and Strategic Management at Suffolk University, Boston,US. blfeedback@ thehindu.co.in)

Published on January 31, 2011

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