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What guides the Chinese tiger as it grows stronger?

February 8, 2010

Patrick Granfield
The National (UAE)
February 7, 2010

The Chinese will celebrate their New Year on
February 14. The year of the ox will close and
the year of the tiger will begin. China’s leaders
don’t appear to have waited for the stars to tell
them to pursue a more aggressive course.

First they derailed the climate change talks at
Copenhagen in December. Then they took the stage
at Davos in January to denounce any accusations
that they were manipulating the value of their
currency. Throw in disputes with Google and their
rebukes of the US president Barack Obama for
meeting the Dalai Lama and approving weapons
sales to Taiwan, and the world has seen another side of China.

China is emboldened; its coffers are swollen with
$2.4 trillion in currency reserves and it is no
longer prepared to kowtow to anybody,
particularly the United States. For the first
time in centuries China is ready to strut on the world stage.

When the country adopted the role as the workshop
of the global economy three decades ago, many of
its enduring traditions were well suited to it.
Since the 13th century, when the centre of
China’s population moved southward towards the
Yangtze River, dependence on the rice paddy
demanded certain rules. Controlling the floods
and building the infrastructure to irrigate vast
swathes of land required social cohesion and
obedience. Knowing your role and abiding by it
was essential to the greater community’s survival.

The global economy has also depended on a similar
communitarian ethic, but among nations.
Globalisation’s "value-chain" as CEOs call it,
created its own hierarchy. The Canadians may
produce pharmaceuticals and the Cambodians
flip-flops, but both could benefit from each
other’s labour. For its part, China has now sold
enough and saved enough so that today they feel
confident enough to lecture the rest of the world on how to behave.

What a global marketplace has helped China to
accomplish, pulling hundreds of millions of its
people out of poverty, is one of the most
impressive transformations in human history.
Those in the developed world have shared in that
success in the savings they saw from cheap
Chinese labour and exports. Growth has not been a
zero-sum game, as proponents of globalisation and
greater engagement with China have pointed out.

But what happens when China no longer acts as if
it shares that view? The global marketplace is
here to stay, but China is more able – and
appears increasingly willing – to manipulate it for its exclusive benefit.

China certainly understands the rules of the
game, or at least, the importance of appearing to
abide by them. Last month China became a charter
member of what was touted as the largest
free-trade pact in the world between itself and
its neighbours in South East Asia. Yet, because
of the way China manipulates the value of its
currency, the yuan, trade between China, its
neighbours or anyone else, can hardly be called free.

Since 2005, the Chinese have allowed the yuan to
appreciate by only 20 per cent, while their
economy has grown by three or four times that
amount. This keeps imports into China expensive
(protecting its own industries at home), and its
exports to the rest of the world cheap (giving
them a tremendous advantage abroad).

Continuing this in the wake of the financial
crisis, China has kept many of the global
recovery’s gains for itself. Other developing
economies can’t compete when China keeps its
goods so cheap. With an economy that grew at 8.7
per cent in 2009, China has emerged from the
financial crisis as the clear victor.

But China’s economic rise can only mask certain
internal challenges for so long. By virtue of its
one-child policy, China’s population is greying
quickly. As the twenty and thirty-somethings
raised during the Chinese boom reach middle age,
will they make the sacrifices to care for their
parents that China’s weak health care and social
insurance system may require of them?

More ominous for global security is the gender
imbalance that the one-child policy has created.
For every 100 girls born in China, 120 boys are
born. By 2020, this will lead to an imbalance of
24 million men, according to the Chinese government.

We’ve heard this story before: historians argue
that a gender imbalance caused by rampant
infanticide of girls during the Qing dynasty
motivated widespread rebellion. Inspiring
nationalism and projecting militarism may provide
a convenient release valve to defuse the tensions
that a gender imbalance can create.

Still, the Chinese people have much to be
thankful for as they celebrate their New Year.
The world should also acknowledge how successful
China has become. But no longer can anyone
pretend that a tiger is really an ox. The world
must figure out and soon if this tiger can be tamed as it grows more powerful.
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