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China as an Economic Power
From: Columbia University
| By:
Andrew J. Nathan |
EDITOR'S INTRODUCTION |
 China appears to be an emerging economic power, with its increasing role in global trade and a phenomenal 8 percent annual growth rate. In this interview with Fathom, Andrew J. Nathan (right), professor of political science at Columbia University and one of America's leading scholars of Chinese politics, takes a hard look at the Chinese economy and assesses its potential as a competitor to the United States. |
Fathom: Can one characterize China as an economic power? |
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| Can China be categorized as an economic power? | |
Andrew J. Nathan: Economically, China is involved in global trade, certainly, but its main roles in the economic system are to export to certain markets--especially the United States, Japan, Western Europe, developed markets--and to be a focus for incoming investment. So it's very different from even a power like Japan--not to mention the United States or Europe--whose currency is internationally accepted, and who has the ability to influence the financial health of the global economy. China doesn't have that power. |
Fathom: With its huge size, what kind of influence does China have on world markets? |
Nathan: China's potential influence on world markets today is not that great. |
Let's take an example of the oil market. As we are speaking today, the oil market is tight, and oil and gas prices are up. Well, China is a significant importer of oil and a major producer of oil. They have a lot of oil fields. So China could theoretically influence this global oil market and the price we pay for gasoline by either producing more, which would lower the price, and then importing less or even exporting, or by producing less and importing more and bidding up the price of oil. That's a potentiality. But it isn't too likely to happen, because the Chinese are endeavoring to manage their oil supply, keep it in a steady state, and not to increase their import, and their imports are a fairly small proportion of their total energy supply. |
So the potential is there because it's a big country, but the likelihood of their fiddling with the international oil market is not that great. |
Another type of scenario would be when the Asian financial crisis occurred back in 1997 and some of the countries, like Thailand and Malaysia, devalued their currencies in order to increase the competitiveness of their exports and recover. Had China then at that moment devalued its currency, that could have delayed the recovery of the other Asian countries because the Chinese products would also be cheaper. And it would have both a direct economic effect and a psychological effect of unleashing a trend of competitive devaluation of currencies. |
But the Chinese didn't do so, for which they are credited with contributing to the recovery. But it's a rather indirect contribution to the recovery. They just sat there and continued to compete in their normal markets with what are in any case good prices, and they really didn't have a need to devalue their own currency at that time. |
If we want to think about doomsday scenarios--and they're not totally off the wall--consider a collapse of the Chinese system. For example, the Chinese are going to enter the World Trade Organization and face enormous challenges to their economic system. They're already facing tremendous challenges--lots of laid-off workers and enterprises that don't make money. If that economic crisis got more severe, or if there were a political crisis and China stopped feeding itself, stopped producing for the world markets, and became a crisis zone like some of the African countries, given how much bigger China is than all of Africa combined in terms of population, that could have an impact on the world economy. |
So these are some examples. But I think what these examples illustrate is the fact that I don't expect China to normally have much impact on the world economy. China is part of the status quo of the world economy. As long as it keeps developing regularly, you won't notice its impact. |
If you contrast that to the United States, where, for example, when [Federal Reserve chairman Alan] Greenspan raises the interest rate by a quarter of a point, the whole world, every financial market--Paris, Tokyo, London, Rio de Janeiro--responds to that. This is not true with China. Nobody cares that way if the Chinese raise their interest rates or if some of their banks go bankrupt or anything like that. It doesn't matter, globally. |
Fathom: Let's take China's integration into the world economy, its entrance into the WTO and its normalized trade relations with the United States. If everything goes well, and if the local industries or state-owned enterprises can stand up to the kind of competition that integration brings, could we see, in the near future, an economy that can rival, for example, Japan's? And how long would that take? |
Nathan: There are different projections about that, and I'm sort of on the skeptical end. But let's look at the optimistic prediction. China is an economy that for many years has been growing at a rate of about 8 percent, which is an incredibly fast rate. And no rich economy grows that fast. By contrast, 2, 3 percent is considered to be a tremendous rate of growth for the United States, and we're congratulating ourselves on that. And Japan has about a zero rate of growth. If you just play out the math, in compound interest, in 20 years the Chinese will be growing faster than the US every year, and they will overtake us. Fine. |
But the trouble is that, first of all, you have to divide that by population. On a per capita basis, China won't be as powerful. But I think more important than that is to look at the structure of the economy that evolves. The United States economy, and those that are like it--the economies of Japan and Europe--are in a whole different technological realm from China's, especially in terms of electronic communication, development of service industries, medical instrumentation and military technology. Our military technology is a generation ahead now. |
If China keeps growing at 8 percent a year it's going to have a number that looks like the American number in terms of output, but the products comprising that output are not going to be the same. I hesitate to predict what they're going to be in 20 years. But if you look at what they are today, the Chinese economy certainly produces a number of technologically sophisticated items, like automobiles and all that goes with a car industry, and so do we. But the American economy is producing things that are much more high tech than what the Chinese economy is producing. |
For the Chinese economy to really rival the American economy at any time in the future requires not only that China keep developing but that the US quit developing, if you will. That is to say, the US has--let's call it a 20-year lead, and as long as it keeps progressing, we would stay the same. |
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