At Large

Year of the Tiger

When it comes to China you're never out of the woods.

By 3.12.10

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In the Chinese zodiac this is the Year of the Tiger. The previous years of the same appellation are said to have been fraught with controversy and even conflict. Tradition says calm and balance is certainly not to be expected.

Contrary to earlier reports, China remained ahead of Japan in holdings of U.S. Treasury securities at the end of 2009. The exact figure (not including private purchases through intermediaries) was $894.8 billion for China and $765.7 billion for Japan of a total amount of international holdings of $3,689 billion. The more important figure, though, is the considerable drop in the Chinese position in Treasury paper of $63.5 billion since June '09. The Chinese government bankers may have been trying to lower their exposure to the falling dollar.

The state of the Chinese currency, the renminbi, however, is a source of consternation for foreign observers. Pressure from the West, especially the United States, for an official readjustment of the value of the renminbi has been vigorously countered by Beijing. China's financial authorities took particular umbrage at an estimate by the Peterson Institute of International Economics that the Chinese economy was undervalued by 41%. Beijing's obvious aim in keeping its currency undervalued is to make the price of its exports attractive. Doing so also reduces the potential of competitive Chinese imports of Western products.

While the instinct is to view the undervaluing of the renminbi as strictly a financial matter, it obscures the speed and extent with which China is approaching its cherished aim of eventual economic and even military equality with the United States. Published Chinese official figures showing investment in civilian and military budgets and specific programs are concomitantly undervalued. Adding forty percent on the top of all official statistics gives a better idea of China's current global status and places it ahead of Japan's economy in dollar terms.

Of course Beijing's rulers are well aware of this reality and what it means when it comes to competition with the United States on the world scene. The Chinese have been particularly adept at using their wealth for combined political and economic purposes globally. Nowhere has this leverage been used more effectively than in Africa. Chinese investment in extractive industries is buttressed by aid in infrastructure development. The end result is not only good business but increasing regional political influence.

One of the best examples of the growing power of the Chinese "brand" is the Egyptian government's active effort to lure investment by a major development instrument in China to apply its successful model in Tianjin to the planned Suez Economic Zone, which is to be located on the southern end of the Suez Canal. The Chinese development corporation, TEDA, would provide 49% of the financing of what Cairo hopes will be a major new manufacturing and trading region in exchange for Chinese access to numerous preferential trade agreements with Egypt.

With such projects focusing on the developing world, China's political power among the poorer nations grows exponentially, even among even traditionally pro-Western governments. In international conferences the Chinese delegations are now treated like rock stars -- or rather the premier Asian tiger that China now is. This is a situation that President Obama ran into at the Copenhagen climate conference. There, according to the journalist Geoff Dyer, "a senior Chinese official wagged his finger and shouted at Mr. Obama" when the U.S. president decided to intervene uninvited in a meeting among Chinese and Third World nations.

Beijing has consistently refused to respond to Washington's criticism of Chinese human rights issues and actions. China has countered Washington's latest efforts to bring human rights matters to Beijing's attention by vociferously attacking U.S. approval of $64 billion in arms sales to Taiwan. The Chinese insist the Americans are purposely endangering peace in Asia. This "apples and oranges" exchange redounded to China's propaganda advantage, especially as Beijing ignored its own announcement of a 50% in rate of growth of its defense budget for this year.

Meanwhile Google continues to threaten to pull out of its highly publicized participation in the Chinese Internet. Unlike the kowtowing manner of many of the other Western companies in China, Google has stood up against Chinese official and unofficial attacks in cyberspace and print.

Beijing's intransigence regarding American and European desires for tougher United Nations sanctions on Iran over its nuclear weapons development is perhaps the most strategically crucial issue currently extant between the U.S. and China. While the philosophical aspect of China's policy is not much discussed, its Communist leadership has been consistent over the years in holding the line against UN interference in the internal affairs of member governments.

Beijing does not fear Iran's growth as a nuclear power. China can play its political intellectual card on Iran even though its real worry is potential blockage of its oil imports from the Middle East. Unlike Washington, which seemingly becomes flustered by complicated foreign policy issues, China's leaders appear to be at the top of their game in that environment. And this Year of the Tiger seems made for the Chinese style of international politics.

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About the Author
George H. Wittman writes a weekly column on international affairs for The American Spectator online. He was the founding chairman of the National Institute for Public Policy.