MASAKI YADA

 

Does the rise of China pose as a threat to the West?
September 2013

 

Introduction:

In recent decades the world has witnessed the exponential rise of Chinese economy, which some economists might view as a threat posed against the United States, as China seems to imminently overthrow America’s dominance in the international economy and consequently in the context of international politics. In 2012, China’s GDP surpassed that of tsunami stricken Japan, and the International Monetary Fund is forecasting that by 2015 China’s economy will become the largest in the world (Giles. 2014). Not only the rapidly expanding size of China’s economy that staggers us in the West, but also it is China’s military capability that raises serious global concerns. China’s geopolitical situations with its neighbouring countries are ever more contentious. Its implication is that China’s influence is not only ever more growing economically, but also politically. In light of it all, a question to be asked is whether the West should regard the rise of China as a threat to the West.

1: In fact, the West relies on China’s rising economy!

In my opinion, the answer to the question is not the straightforward one. In the case of the USA and China, there has been a curiously symbiotic relationship between the two countries. According to a Harvard Professor Niall Ferguson, in his book The Ascent of Money the author argues that over the past few decades the America has been acting as a spender, while China has patiently and obediently played a role of a lender. What this means is that whilst the America has been issuing US bonds during that time in order to maintain its economy afloat in a contradictorily unsustainable way, China has been the one to buy the US’s debt, which is said to be as much as one trillion dollars. Simply put, the US has necessitated China’s strong economy in order to prevent it from economically collapsing, even though their symbiotic relationship has increasingly put the America in a vulnerable position where they are at a risk of undermining their influence on the international politics.

2008 marked a turning point. In the wake of the collapse of the America’s fourth largest investment bank Lehman Brothers, the US Federal Reserve System, which is in charge of the country’s fiscal policy decided to embark on a monetary policy notoriously called ‘quantitative easing’. This is rooted in the theory advocated originally by a British economist John Maynard Keynes, and opposed and modified subsequently by a professor at the University of Chicago Milton Friedman. The former theorist argued that in times of economic crises, a government should intervene its country’s economy by stimulating the rate of consumption. What economic stimuli imply in this context is simply to print more money so that consumers gain confidence in loosening their purse strings. The stimulus package aims at stirring consumers’ appetite for further spending as opposed to saving, which means economic stagnation. This, however, conveys an illusory picture, as the ‘quantitative easing’ is often accompanied with negative side effects such as the loss in the value of a currency and inflation.

Not only was the US monetary policy that exposed their financial instability to China’s growing economic power, but also the intertwined global financial network was what has allowed China’s economic power to seep into the Western economy. And the genesis of the phenomena can be traced back to the Nobel Prize laureate Milton Friedman. In her recent book The Shock Doctrine: The Rise of Disaster Capitalism, a Canadian journalist Naomi Klein argues against financial theories associated with Friedman. She points out that the cause of the global economic crisis experienced in 2008 was rooted largely in Friedman’s economic theory that spawned neoliberal policies. Friedman was an advocate of free market economy, deregulation and privatisation of many industries that were traditionally run by state-owned corporations. Together with this globalised network of financial system, the aggressive monetary policy to increase the money supply is a propensity not peculiar to the USA, but rife in Europe as well as in Japan under the rein of the current Prime Minister Shinzo Abe. Most European countries that were affected by the global financial crisis precipitated in 2008 are heavily reliant on the monetary policy of leveraging. And more often than not, it leverages the resources that are either unwarranted such as taxing on the future generations and those who are not yet born, or foreign finance. To be more precisely, they are leveraged by China’s rising economic power. Going back to the original question, given the fact that countries like the United States and the western European countries are reliant on China’s rapidly rising economy, it is rather inappropriate to ask the question: the West should regard the rise of China as a threat to the West. It is simply for the reason that they have already been forced to accept and embrace the status quo.

2: No need to fear China. Look at their own political system.

In response to the question of whether the West should ‘fear’ China, there is another reason for my answer to be “no” yet again. And that is not so much to do with China’s economy, but rather their own political system. It is possible to assume that the Western dominance that has lasted over the past five centuries is largely due to their institutional superiority to the rest of the world. In the aforementioned author Niall Ferguson’s another book Civilization: the West and the Rest, he argues that there are six key institutional factors that have set the West in such ascendency. And one of them, as he argues, is the rule of law, moreover, having a representative government. To put more specifically, the key is the rule of law that is based on private property right and legislatures to be elected by the representatives of property owners. One’s property, be it an article of furniture or a piece of farmland, often symbolises the fruit of one’s labour, and if the ownership of it is threatened by arbitrary reasons, it utterly undermines one’s work ethic, and consequently, a state’s economic and political power weakens. Drawing on various reasons for the failure of the Communist states, Ferguson argues that private property right is fundamental to the growth of a country’s economy as a whole. Conversely, without private property right, one feels a lack of incentives, which is detrimental to one’s work ethic. Not only that, but also without a representative government therefore creating political inequality, a country becomes prone to all sorts of corruptions and illegal activities that deter a country’s economic growth. Enforcing a law as a means to protect the rights of private property owners underpins the basis of a peaceful and stable state. Furthermore, without having these key institutional components in place, failures of governments are inevitable, as we have seen in the evidence of severe economic stagnation during the time of the Soviet Union and other Communist states. Moreover, this is just one symptom of many internal flaws found in the political system of Communist states. Without Democracy, as numerous historical evidence suggests, economic growth cannot be sustained.
3: Look inside Ourselves

Hence, despite IMF’s forecast that China is going to surpass the USA in terms of GDP in the not distant future, the West should not fear China so hysterically as some economists encourage us to be, but rather keep a close eye on their own institutions, which have enabled them to dominate the world for several centuries. According to Ferguson, even though the West came up with effective and sustainable institutional structure after centuries of wars and conflicts, their institutions are, in fact, degenerating. In his latest book The Great Degeneration,he points out that one of the six institutional qualities that made the West a world dominant force, such as work ethic has greatly been disparaged in the West. According to the statistics complied by OECD in 2013 the average annual working hours of some western European countries including Germany, the Netherlands and France are less than 1500 hours, while in Asia people work longer hours. For instance, in South Korea the annual hours worked per worker in 2013 was 2163 hours on the average (OECD. 2013). Although China is not included in OECD countries, according to the labour department of the local government in Hong Kong, the average weekly working hours of all employees in the region are 46 hours, starkly contrasting 35 hours in France (OECD).

Conclusion:

Although I began this essay by asking the question: should the West fear the rise of China, the efficacy of the question itself appears to be in question at this point. For the reasons that I have thus far elucidated, a more productive question that the West should be asking is not whether the West should ‘fear’ the growing external force of China, which has an internally flawed political system. It is rather the degenerating institutional system of their own that the West should be questioning as they gave way to the global dominance over centuries in the past. Although remarkable changes in our external world often surprise us and blind us time and time again, what is worth paying attention to is rather found in the erosion creeping up within.

 

 

Reference

Ferguson, N. (2008). The Ascent of Money. New York: Penguin Press

Ferguson, N. (2011). Civilization: the West and the Rest. Penguin Books

Ferguson, N. (2013). The Great Degeneration. Penguin Press

Giles, C. (2014). China poised to pass US as world’s leading economic power this year. Financial Times, 30 April.[Online] available at: http://www.ft.com/intl/cms/s/0/d79ffff8-cfb7-11e3-9b2b-00144feabdc0.html#axzz3BotG6Rkz [accessed on 27 August 2014]

Klein, N. (2007). The Shock Doctrine: The Rise of Disaster Capitalism. Knopf Canada

Report of the Policy Study on Standard Working Hours’ (2012) The Labour Department. Available in PDF from: http://www.labour.gov.hk/eng/plan/pdf/swh/swh_report.pdf

Organisation for Economic Co-operation and Development (OECD). (2013). Average annual hours actually worked per worker. [Online] available at: http://stats.oecd.org/Index.aspx?DataSetCode=ANHRS [accessed on 20 August 2014]

Critical thinking is much needed

 

 

 

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