For Sri Lankans Who Are In Limbo Due To China & America Conflict

By Ernest Kithsiri –DECEMBER 13, 2020

Ernest Kithsiri

According to Dr.Kishore Mahbubhani, until 1800 China and India were the biggest economies in the world. Since they were the countries with biggest populations, we can assume above statement has some validity. Since 1800, above status began to change due to the Industrial revolution in Europe and America, which he considers as an “aberration”. He further believes, this anomaly should correct itself with the rise of China and thereafter India. Will we ever see it?

In 1950, in PPP terms, Americas GDP share (as a percentage of world GDP) was 27.3% while China had only 4.5%. In 1990, America was 20.6% and China was 3.86%. However as of 2018, America’s GDP share percentage was 15 while China was at 18.6. 

With above trajectory, it seems Dr. Kishores Mahbubhani’s argument has a weight and validity. Yet the purpose of this article is to investigate the possibility of such an argument become reality, the behavior of other countries, behavior of China when it’s the global superpower. Let’s investigate it in number of fronts such as behavior of other countries when China rises.

Economic Reasons

America rose to the primacy by being an economic superpower. Economic superiority was achieved predominantly by following means:

* Scientific Innovations

* Vibrant markets

* Population growth

* Creating powerful institutes

* Best universities in the world

Those were the factors America had sole control within its boundaries. But there were external factors America manifested to its advantage

* Global currency

* Immigration

* Distribution of knowledge

* Investments

* Security agreements

Currently 41.27% of global transactions are carried out in USD while China’s Renminbi (RMB) makes up only 0.98%. America is the only country continued to develop despite a negative trade balance. The secret is the global currency. Every country should sell something to America to obtain US dollars to bolster the amount of reserve currency they should possess for international trade. For example, when a country buys oil from Saudi Arabia transactions are in USD but there’s no goods being shipped from America for the initial loan. Hence It is natural for America to maintain a negative trade balance with most of the countries. Donald Trump’s claim about trade deficit, hence the disadvantage to America lacks thorough understanding of American economy. When China was heavily importing raw materials in the period of 2006-2012, China obtained the largest amount of USD for import purposes. Transaction fees were the most important revenue source for American banks. As the former federal chairman Ben S Bernanke put it “A great deal of U.S. currency is held abroad, which amounts to an interest-free loan to the United States. However, the interest savings are probably on the order of $20 billion a year, a small fraction of a percent of U.S. GDP, and that “seigniorage,” as it is called, would probably still exist even if the dollar lost ground to other currencies in more-formal less informal international transactions” 

Global Currency, as some analysts say, sometimes termed as the “Achilles heel” for America i.e the weakest chink in the financial system. Yet due to the American military might, nobody has been able to challenge it. The system is stable unless America itself recklessly spend the loan in non-value-added ventures such as recurring government expenditures.

America continued to maintain a healthy level of population growth which is quintessential for the economy. American population is projected to be 379 million in 2050 whereas Chinas population will stagnate around 1.74 billion despite relaxation of “One Child” Policy.

America also did not shy away from its obligation of sharing knowledge. American universities are the most attractive universities in the world. Millions of international students study there and depart to their countries. Throughout the long history of humanity, the most successful societies have always been those that fostered diverse school of thought emerge simultaneously. American universities have created the most powerful intellectual ecosystem. There is significant number of Chinese students studying in America and departed to china for high perk jobs. Some are closely working and supporting the Chinese Communist Party. Number of policy institutes in China are now run by American or Western educated intellects (Eg: Dr. Keyu Jin, Dr. Eric Li). The daughter of the Chinese President Xi Jingping is a Harvard Graduate too.

America also did not shy away from investing in other countries that helped build those countries. In addition to investments in China, America’s investments in Singapore is about US$274 billion which is 80% of US foreign investments in ASEAN (USD 328 billions). It’s investments in Australia amounts to approximately USD169 billion, and in Japan USD 129 billion, India USD 45 billion, South Korea USD 41 billion. Investments in those countries helped build their middle class hence most of them achieved developed status.

Soft Power

Dr. Joseph Nye of Harvard University introduced the concept of “soft power” in the late 1980s. For Nye, power is the ability to influence the behavior of others to get the outcomes you want. There are several ways one can achieve this: you can coerce them with threats; you can induce them with payments; or you can attract and co-opt them to what you want. This soft power – getting others to want the outcomes you want – co-opts people rather than coerces them.

America’s soft power is shaped by its strong institutions and foreign policies. Even though they have been fairly weakened in the recent times under Donald Trump administration, most people believe it will revert to its pre-Trump era under the forthcoming Biden Administration.

To highlight the importance of soft power than any other tool, Dr. Nye has put it in this way “ A country may obtain the outcomes it wants in world politics because other countries – admiring its values, emulating its example, aspiring to its level of prosperity and openness – want to follow it. In this sense, it is also important to set the agenda and attract others in world politics, and not only to force them to change by threatening military force or economic sanctions. This soft power – getting others to want the outcomes that you want – co-opts people rather than coerces them”

China’s Rise

According to a segment of Nationalists in China, they endured a century of humiliation despite being the largest population in the 18th century. The humiliation by Japanese conquest, Handover of Manchuria to Russia, Western powers America, Britain, Germany etc. Major humiliations are summarized as follows.

* Defeat in the First Opium War (1839–1842) by the British

* The unequal treaties (in particular Nanking, Whampoa, Aigun and Shimonoseki)

* Defeat in the Second Opium War (1856–1860) and the sacking of the Old Summer Palace by British and French forces.

* Signed the Treaty of Aigun (1858) and Treaty of Peking (1860) during the Second Opium War, which ceded Outer Manchuria to Russia.

* Defeat in the Sino-French War (1884-1885), losing the suzerainty over Vietnam and the influence in Indochina peninsula.

* Defeat in the First Sino-Japanese War (1894–1895) by Japan

* The Eight-Nation Alliance invasion to suppress the Boxer uprising (1899–1901) and impose reparations in excess of the government’s annual tax revenue. 

* British expedition to Tibet (1903–1904)

* The Twenty-One Demands (1915) for loan advantage and local government control by Japan

* Japanese invasion of Manchuria (1931–1932)

* The Second Sino-Japanese War (1937–1945)

Even Mao Tse Tung’s communist movement failed to yield tangible economic results. By 1980 after decades of Mao’s economic mismanagement- Notable failures include “Great Leap Forward” and Cultural revolution – China was still a desperately poor, but by international standards a remarkably equitable and regionally balanced economy. 

Deng Xiaoping and Zhu Rongi are the equivalent Alexander Hamilton & Thomas Jefferson in America, says Dr. Patrick Mendis in his “Peaceful War”. Deng Ziaoping’s “unbalanced growth strategy” in simple terms is the capitalist model with a Chinese character i.e in simple terms “ to open China to the world”. It included W. Arthur Lewis’s model of economic development with unlimited supplies of labour put simply how the surplus labour from rural activities can be utilized to bolster the national economy. The other was Paul Krugmans principle of new economic geography which showed how the concentration of labour and economic activities in urban areas and regions could generate “agglomeration economies” or the additional productivity gains that come from specialization and economies of scale which then lead to rapid trade expansion. 

Even if China achieved its economic feat, Zhu Rongi’s societal reforms seem to have not progressed forward. In complete contrast, America has progressed from its civil war periods through slavery until it elects a black president.

Deng Xiaoping’s capitalist economic principles attracted American businesses to China. Currently most of such business’s profits are from the Chinese market.

In 1993 revenue of Boeing company in China was USD 1.2 billion and in 2017, it is USD 11.9 billion. In next 20 years Boeing forecasts a sale of 7690 new planes in China.

General Motors sold 3.64 million vehicles in China in 2018 and China accounted 42% of GM’s sale in 2017.

China enjoys the Most Favored Nation(MFN) status in the World Trade Organization(WTO) thereby enjoying many advantages than other peer developing countries. When President Bill Clinton tried the renewal of MFN status to China’s human rights issues in 1993 many American companies vigorously lobbied the white house and the congress citing billions of dollars of exports are at stake. Boeing and GM played a key role in defending China’s MFN status in WTO. 

China is enjoying all benefits of a developing nation while it is the 2nd largest economy. Some allege, China is hiding behind WTO rules intended for poor developing countries. When China Joined WTO in 2001, per capita income was USD 2900 in PPP terms and was the 6th largest economy. By 2015 it’s per capita has grown to USD 14,400 in PPP terms and now the 2nd  largest economy.

Hank Paulson, the former US treasury secretary says, 17 years after China entered WTO, China has not opened its economy to foreign competition while it uses technical standards, subsidies, licensing procedures, regulations as non-tariff barriers to trade and investments.

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