After more than a century as the world’s largest economy, the US will need to adjust to its declining global hegemony
Mark Weisbrot, The Guardian, April 27, 2011
Various observers have noted this week that China’s economy will be bigger than that of the United States in 2016. This comes from the International Monetary Fund’s (IMF’s) latest projections, which were made in its semi-annual April world economic outlook database. Since 2016 is just a few years away, and it will be the first time in more than a century that the United States will no longer be the world’s largest economy, this development will be the object of some discussion – from various perspectives.
First, let’s consider the economics. China has been the world’s fastest growing economy for more than three decades, growing 17-fold in real (inflation-adjusted) terms since 1980. It is worth emphasising that most of this record growth took place (1980-2000) while the rest of the developing world was doing quite badly by implementing neoliberal policy changes – indiscriminate opening to trade and capital flows, increasingly independent central banks, tighter (and often pro-cyclical) fiscal and monetary policies, and the abandonment of previously successful development strategies.
China clearly did not embrace these policy changes, which were promoted from Washington by institutions such as the IMF, World Bank, and later the WTO. (China did not even join the WTO until 2002.) It is true that China’s growth acceleration included a rapid expansion of trade and foreign investment. But these were heavily managed by the state, to make sure that they fitted in with the government’s development goals – quite the opposite of what happened in most other developing countries. China’s goals included producing for export markets, promoting higher levels of technology (with the goal of transferring technology from foreign enterprises to the domestic economy), hiring local residents for managerial and technical jobs, and not allowing foreign investments to compete with certain domestic industries.
China’s economy is still very much state-led, with the government controlling most of the financial system, the exchange rate, and about 44% of the assets of major industrial enterprises. That is why China was able to plow through the world recession with GDP growth of 9.8%, despite losing about 3.7 percentage points of GDP due to falling net exports.
Now for the politics and international implications. First, much of the discussion of China’s rise is written from a Washington perspective – that is, from the perspective of an empire. From this view, China’s rise is a “threat”. Since this view sees the supremacy of Washington and its allies as good for the world, China’s rise is also seen as a threat to the world. It is assumed that China will become an empire like the United States, but will not be so “benevolent” as the United States is.
This view is not supported by the facts. To take just current and recent history, it is the United States that invaded Iraq, leading to an estimated million deaths, is occupying Afghanistan, bombing Pakistan and Libya, and threatening Iran. The United States’ and its allies’ control over many developing countries’ economic policies through the IMF, World Bank and other institutions has also caused a lot of damage over the past few decades.
So, a shift of power toward a more multipolar world is likely to give us a more peaceful and just world. In fact, it is already happening: the majority of South America, for example, is now governed by democratic left governments that have produced positive reforms that benefit the majority – something that was practically impossible to achieve while Washington dominated the region. And of course, the vast majority of people in the United States also stand to benefit from a smaller US role in the world, as we transition back to a republic from an empire: less spending on senseless wars, fewer casualties, fewer enemies, less distraction from our real problems at home.
China’s foreign policy is mainly geared toward securing the raw materials and trade that will fuel its growth and development. This is done through commercial transactions. Of course, its corporations – like those of the rich countries – have come under criticism in various countries. But China does not try to tell other countries what their foreign policy towards other countries, or their overall economic policies, should be – as the United States often does. This is an important difference between a country that pursues its own national and economic interests, and an empire that seeks to impose its own order on the world.
It is always possible that China, once it becomes a rich country – and this is many years away – could develop imperial ambitions. But so far, its leadership seems to see China as a developing country seeking to become a high-income country, and doesn’t see a role for empire-building in this process. “Hide brilliance, cherish obscurity,” Chinese leader Deng Xioaping once said.
A few months ago, press reports, using an exchange rate measure of GDP, announced that China had become the world’s “second largest economy” just this year. But by a purchasing power parity (PPP) measure, which adjusts for the difference in many prices between China and the US, China had become the second largest economy years ago. A technical matter: if we measure China’s economy in dollars at current exchange rates, it reached $5.9tn in 2010, as compared with $14.7tn for the US. By a purchasing power parity measure, its economy reached $10.1tn in 2010. It is that measure that the IMF projects to grow to $18.98tn in 2016, putting the US in second place at $18.81tn.
However, it is likely that even the IMF’s PPP measure understates China’s GDP: economist Arvind Subramanian has estimated that China’s PPP GDP in 2010 was already about even with that of the United States. An IMF spokesperson, quoted this week by the Financial Times, weighed in on the debate:
“The IMF considers that GDP in purchase power parity (PPP) terms is not the most appropriate measure for comparing the relative size of countries to the global economy, because PPP price levels are influenced by non-traded services, which are more relevant domestically than globally … The Fund believes that GDP at market rates is a more relevant comparison. Under this metric, the US is currently 130% bigger than China, and will still be 70% larger by 2016.”
It is true that the “market rate” measure is better for some comparisons. But one important place where the PPP measure is more relevant is in military spending. The cost of producing a military plane and training a pilot in China is much lower than in the United States. Washington’s current policy is to maintain military supremacy in Asia, but an arms race with China could make the cold war look cheap by comparison. The Soviet Union’s economy was just a quarter of United States’ economy when we had that arms race. If the US were to have a serious arms race with China, we could forget about Medicare, social security and most of what our federal government spends money on.
Fortunately, a new cold war with China is not in the cards for now. But the size of China’s economy is another good reason to make sure that it doesn’t happen.
Arming ‘indirectly’: US, Frace and Italy to buy Libya rebel oil, Britain and Kuwait to simply throw money at them
AP: US administration gives go-ahead for oil deals with Libya rebels
The Obama administration has eased its sanctions on Libya to allow for the sale of oil controlled by the rebels. The move will allow Libya’s opposition forces to use the income from oil sales to purchase weapons and other supplies.
The U.S. Treasury Department’s Office of Foreign Assets Control issued the order Tuesday. It will allow U.S. companies to engage in transactions involving oil, natural gas and other petroleum products if the petroleum exports will benefit the opposition Transitional National Council of Libya.
Expatica.com: Italy and France to work with Libya rebels on oil sales
Rome is set to host a meeting of the international contact group on Libya early next month which will also discuss ways of helping oil sales from rebel-held eastern Libya to aid the uprising against Kadhafi.
Reuters: Britain, Kuwait setting up fund to aid Libya rebels
Britain hopes for international agreement in the coming week on setting up a fund to help Libya’s rebel-held east, Foreign Secretary William Hague said on Tuesday.
The fund is aimed at helping the rebel’s interim national council help pay public sector salaries and with other costs.
“In the coming week, we hope to agree internationally the process for establishing a temporary financial mechanism to provide a transparent structure for international financial support for the financial requirements of the (national council) such as public sector pay,” Hague told parliament.
Kuwait will contribute 50 million Kuwaiti dinars ($182 million) to the rebel council, a rebel leader said on Sunday.
And, of course, Qatar is already arming the rebels
Egypt and Saudi Arabia are also suspected of exporting arms to Libya
It is the Pentagon’s Africom versus China’s web of investments – the ultimate prize: Africa’s natural resources.
Pepe Escobar, Al Jazeera, April 26, 2011
From energy wars to water wars, the 21st century will be determined by a fierce battle for the world’s remaining natural resources. The chessboard is global. The stakes are tremendous. Most battles will be invisible. All will be crucial.
In resource-rich Africa, a complex subplot of the New Great Game in Eurasia is already in effect. It’s all about three major intertwined developments:
1) The coming of age of the African Union (AU) in the early 2000s.
2) China’s investment offencive in Africa throughout the 2000s.
3) The onset of the Pentagon’s African Command (Africom) in 2007.
Beijing clearly sees that the Anglo-French-American bombing of Libya – apart from its myriad geopolitical implications – has risked billions of dollars in Chinese investments, not to mention forcing the (smooth) evacuation of more than 35,000 Chinese working across the country.
And crucially, depending on the outcome – as in renegotiated energy contracts by a pliable, pro-Western government – it may also seriously jeopardise Chinese oil imports (3 per cent of total Chinese imports in 2010).
No wonder the China Military, a People’s Liberation Army (PLA) newspaper, as well as sectors in academia, are now openly arguing that China needs to drop Deng Xiaoping’s “low-profile” policy and bet on a sprawling armed forces to defend its strategic interests worldwide (these assets already total over $1.2 trillion).
Now compare it with a close examination of Africom’s strategy, which reveals as the proverbial hidden agenda the energy angle and a determined push to isolate China from northern Africa.
One report titled “China’s New Security Strategy in Africa” actually betrays the Pentagon’s fear of the PLA eventually sending troops to Africa to protect Chinese interests.
It won’t happen in Libya. It’s not about to happen in Sudan. But further on down the road, all bets are off.
Meddle is our middle name
The Pentagon has in fact been meddling in Africa’s affairs for more than half a century. According to a 2010 US Congressional Research Service study, this happened no less than 46 times before the current Libya civil war.
Among other exploits, the Pentagon invested in a botched large-scale invasion of Somalia and backed the infamous, genocide-related Rwanda regime.
The Bill Clinton administration raised hell in Liberia, Gabon, Congo and Sierra Leone, bombed Sudan, and sent “advisers” to Ethiopia to back dodgy clients grabbing a piece of Somalia (by the way, Somalia has been at war for 20 years).
The September 2002 National Security Strategy (NSS), conceived by the Bush administration, is explicit; Africa is a “strategic priority in fighting terrorism”.
Yet, the never-say-die “war on terror” is a sideshow in the Pentagon’s vast militarisation agenda, which favours client regimes, setting up military bases, and training of mercenaries – “cooperative partnerships” in Pentagon newspeak.
Africom has some sort of military “partnership” – bilateral agreements – with most of Africa’s 53 countries, not to mention fuzzy multilateral schemes such as West African Standby Force and Africa Partnership Station.
American warships have dropped by virtually every African nation except for those bordering the Mediterranean.
The exceptions: Ivory Coast, Sudan, Eritrea and Libya. Ivory Coast is now in the bag. So is South Sudan. Libya may be next. The only ones left to be incorporated to Africom will be Eritrea and Zimbabwe.
Africom’s reputation has not been exactly sterling – as the Tunisian and Egyptian chapters of the great 2011 Arab Revolt caught it totally by surprise. These “partners”, after all, were essential for surveillance of the southern Mediterranean and the Red Sea.
Libya for its part presented juicy possibilities: an easily demonised dictator; a pliable post-Gaddafi puppet regime; a crucial military base for Africom; loads of excellent cheap oil; and the possibility of throwing China out of Libya.
Under the Obama administration, Africom thus started its first African war. In the words of its commander, General Carter Ham, “we completed a complex, short-notice, operational mission in Libya and… transferred that mission to NATO.”
And that leads us to the next step. Africom will share all its African “assets” with NATO. Africom and NATO are in fact one – the Pentagon is a many-headed hydra after all.
Beijing for its part sees right through it; the Mediterranean as a NATO lake (neocolonialism is back especially, via France and Britain); Africa militarised by Africom; and Chinese interests at high risk.
The lure of ChinAfrica
One of the last crucial stages of globalisation – what we may call “ChinAfrica” – established itself almost in silence and invisibility, at least for Western eyes.
In the past decade, Africa became China’s new Far West. The epic tale of masses of Chinese workers and entrepreneurs discovering big empty virgin spaces, and wild mixed emotions from exoticism to rejection, racism to outright adventure, grips anyone’s imagination.
Individual Chinese have pierced the collective unconscious of Africa, they have made Africans dream – while China the great power proved it could conjure miracles far away from its shores.
For Africa, this “opposites attract” syndrome was a great boost after the 1960s decolonisation – and the horrid mess that followed it.
China repaved roads and railroads, built dams in Congo, Sudan and Ethiopia, equipped the whole of Africa with fibre optics, opened hospitals and orphanages, and – just before Tahrir Square – was about to aid Egypt to relaunch its civilian nuclear programme.
The white man in Africa has been, most of the time, arrogant and condescending. The Chinese, humble, courageous, efficient and discreet.
China will soon become Africa’s largest trading partner – ahead of France and the UK – and its top source of foreign investment. It’s telling that the best the West could come up with to counteract this geopolitical earthquake was to go the militarised way.
The external Chinese model of trade, aid and investment – not to mention the internal Chinese model of large-scale, state-led investments in infrastructure – made Africa forget about the West while boosting the strategic importance of Africa in the global economy.
Why would an African government rely on the ideology-based “adjustments” of IMF and the World Bank when China attaches no political conditions and respects sovereignty – for Beijing, the most important principle of international law? On top of it, China carries no colonial historical baggage in Africa.
Essentially, large swathes of Africa have rejected the West’s trademark shock therapy, and embraced China.
Western elites, predictably, were not amused. Beijing now clearly sees that in the wider context of the New Great Game in Eurasia, the Pentagon has now positioned itself to conduct a remixed Cold War with China all across Africa – using every trick in the book from obscure “partnerships” to engineered chaos.
The leadership in Beijing is silently observing the waters. For the moment, the Little Helmsman Deng’s “crossing the river while feeling the stones” holds.
The Pentagon better wise up. The best Beijing may offer is to help Africa to fulfil its destiny. In the eyes of Africans themselves, that certainly beats any Tomahawk.
Xinhua, April 26, 2011
China may increase assistance to foreign countries to “an appropriate extent” within its ability, as China’s national strength grows, Vice Minister of Commerce Fu Ziying said here on Tuesday.
During a press conference on China’s foreign aid, Fu said China will not make big changes to its general principles on assistance to other developing countries, but will adjust the structure and fields of specific projects in the future.
Fu said China will promote regional and sub-regional cooperation in foreign aid and allocate its foreign aid resources through platforms such as the China-Africa Cooperation Forum.
He said China and the Caribbean states will discuss issues on Chinese foreign aid later this year at the ministerial meeting of the China-Caribbean Economic and Trade Cooperation Forum.
By the end of 2009, China had offered aid to 161 countries and more than 30 international and regional organizations, according to a white paper on China’s foreign aid published last week.
As the world’s largest developing country, China provided 256.29 billion yuan (38.54 billion U.S.dollars) in aid to foreign countries, including 106.2 billion yuan in grants, 76.54 billion yuan in interest-free loans and 73.55 billion yuan in concession loans, according to the white paper.
Chris Buckly, Reuters, April 26, 2011
The Chinese government warned on Tuesday against using human rights disputes as what it called a tool to meddle, ahead of talks with the United States that will focus on complaints about Beijing’s crackdown on dissent.
The two-day-long human rights dialogue, from Wednesday, with U.S. Assistant Secretary for Democracy, Human Rights and Labor Michael Posner and other Washington officials, will come at a sensitive time over the issue, long a sore point with Beijing.
Chinese Foreign Ministry spokesman Hong Lei said his government was willing to discuss rights issues with the United States as equals. But he warned against what Beijing sees as Western over-reaching.
“When it comes to differences between China and the United States over human rights, the two sides can enhance mutual understanding on a basis of equality and mutual respect,” Hong told a regular news conference.
“We oppose any country using human rights issues as an excuse to interfere in China’s domestic affairs.”
Howard Schneider, The Washington Post, April 26, 2011
China’s efforts to promote local industries are undercutting American competition here, U.S. business officials said Tuesday as they questioned whether the nation truly intends to fully open its economy.
In its annual report on the U.S. business climate, the American Chamber of Commerce in China said a collection of rules, standards and other requirements under China’s “indigenous innovation” policy were starting to hamper the ability of outside technology firms to operate.
As the nation has intensified government protection of and support for designated industries, the policies have raised doubts “about the depth of commitment of China’s leadership to reform, of completing the transition” to a more open economy, said chamber president Christian Murck.
U.S. business and political leaders have repeatedly criticized China’s new push to advance its local technology companies, citing the importance of freer access to China’s vast market to American companies. China has become a top destination for U.S. exports, and success there is a central aim of major corporations.
There is a growing acknowledgment, however, that the economic access that has boosted China’s growth over the past 20 years – and opened the country to companies such as Wal-Mart and General Motors — has entered a new and, for the United States, more complicated phase.
China seems intent on keeping key parts of its economy, such as the finance and service sectors, largely off limits to foreign firms – stalling reform before it touched areas where U.S. companies hold an advantage. At the same time, strict regulations and state support are being used help local businesses in the technology, energy, aviation and other fields that the government hopes to establish Chinese leadership. The U.S. Chamber of Commerce argued in a recent report that those policies are “a blueprint for technology theft” and force foreign firms to either hand over their ideas and know-how or miss out on the growth of what is now the world’s second-largest economy.
Ezequiel Minaya, The Wall Street Journal, April 25, 2011
Venezuelan President Hugo Chavez announced a 26.5% increase of the minimum wage late Monday, which will take effect in two stages beginning May 1.
Next month, minimum wage will be raised 15% followed by a second hike in September, bringing the monthly salary to 1,548 bolivars or $360 at the state-set exchange rate. The new wage will cover roughly 1.4 million workers, according to a government official who joined Chavez in unveiling the measure on state television.
Chavez has made it customary since 2000 to raise the minimum wage around this time of year to coincide with the May 1 observance of International Workers’ day. With a 2012 presidential election looming, the pay hike has the added benefit of possibly boosting the popularity of Chavez, who has maintained a core constituency with the aid of lavish social spending. Many workers in Venezuela receive additional benefits that include subsidized housing and food. And recently, the leftist leader announced that a greater percentage of profits from the state-run oil industry would be diverted to Fonden, a social development fund.
The minimum wage increase trails Venezuela’s inflation rate, which is among the highest in the world at 27.4% countrywide during the 12-month period through March. Earlier this month, top officials from the Central Bank of Venezuela and the Finance Ministry said the country’s economic outlook was improving and inflation was on the decline.
During his appearance, Chavez also revealed plans to extend a food benefit for workers that would strike a requirement that firms have a certain number of employees before having to provide meals.