Lisbon China File 1 (0), 12 April 2009

Editor: Daniel Alvarenga

Analysis – China’s Two Hats: Great Power and Developing Country

An observation of China’s recent behaviour at the world stage reveals two particular “hats” that stand out. China has been strategically switching between the hats of “developing country” and of “great power” according to each specific need and challenge. On the one hand, when it comes to extending its influence within international financial institutions such as the IMF and at the Doha trade negotiations, China “brands” itself as a World Power. A Great Power unjustly kept back by outdated international structures and decision-making processes that privilege old powers. On the other hand when it comes to environmental calls for China to curb its emmission or pressures to value the Renmibi more quickly, China resorts to the developing country “hat”. In the case of CO2 emmissions it claims it cannot, in the short term, afford to sacrify slower development prospects just to solve a problem that was historically created and perpretrated by developed countries. As for a quicker appreciation of the Renmibi, this would hurt China’s exports and subsequent economic development prospects. Given the current financial crisis, China is now extra vigilante of any hints of instability and revolt at home. Central government knows sustained economic growth and keeping its middle classes happy is imperial for being successful in achieving so and, most importantly, the leadership increasingly understands that its fate is intimately connected to what happens at the international level. So, despite a tradition of “quiet diplomacy” and of a self-professed “peaceful rise”, we are destined to see more and more of this China’s “quiet” diplomacy, expanding and transforming itself beyond the issues of Tibet and Taiwan. Diplomacy is transforming itself to become more and more assertive, particularly in the field to economic diplomacy. It is the cheer functional need to reduce levels of economic and political uncertainty at home that propels China to actively partake in the redesign of International financial institutions of the fast-changing architecture of International Political Economy. China knows that it can have a big influence in terms of how serious and deep the global recession can become. It also knows that it needs to be proactive if it wants the structure and “rules” coming out of the global economic restructuring to be in line with its own economic development strategies at home. Leaving the Great Power hat” on for longer periods is only the natural step towards managing its interconnected economy and, subsequently, successfully containing the varied set of centripetal forces menacing to dilute the grip of central government at home.

Daniel Alvarenga

Editor, Lisbon China File

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China at Home

Ackgnowledging the threat of Ultra-Nationalism

Jonathan Manthorpe - The government-run weekly magazine Oriental Outlook printed a blistering editorial against radical nationalism. This is the latest in a raft of official condemnations of excessive patriotism. Link

Deconstructing China’s Real Estate Overbuilding bubble

Chan Akya - Two numbers stand out about China’s Real Estate sector: 100 million square feet of office space and a "14 years' supply" at the best possible take-up rate. This shows as it does the rampant overbuilding that went on across the Chinese capital. Link

China’s Healthcare system holds back domestic consumption

Hu Xiaoyi - There are still over 200 million people that are not covered by medical insurance system. Cautious Chinese saving in case of illness is one of the factors keeping domestic consumption relatively low, complicating Beijing's efforts to ride out the global financial crisis. Link

China’s CO2 emissions as “subsistence emissions”

Yuan Si – Within current climate change debates there is a set of arguments used by China to defend labeling its emissions as “subsistence emissions”. Link

China International

China, the IMF and post-G20 International Finance

Song Zhe - China has now supported the IMF by quota funding, purchasing bonds from the World Bank, including private bonds for trade financing. Link

New Tax Breaks and Internal Incentives may anger Washington and other Trade Partners

Joe Macdonald - Alarmed by falling trade, Beijing is trying to boost exports and avert more job losses by giving companies tax breaks and other aid - a tactic that could anger Washington and other trading partners. Link

China is making Yuan payments easier amidst growing concerns over its dollar reserves

Bob Chen and Judy Chen - China’s leaders, increasingly concerned about the nation’s $740 billion of U.S. Treasuries, are making it easier for trading partners and consumers to do business in yuan. Link

Calls for a G2 are heard while Obama and Hu Jintao schedule vital economic dialogue for this Summer Li Xing - The China-US Strategic Economic Dialogue (SED), initiated by Hu and former US president George W. Bush in September 2006, served mainly as a bridge in bilateral economic relations and resolving trade disputes. Link

France is now emphasizing recognition of the one-China policy

Sharon LaFraniere and Alan Cowell - France went to some lengths to emphasize that its position on Tibet in particular was not a shift from its long-held policy. Link

Intra-Asian trade remains hostage to China and associated extra-regional demand

Jong-Wha Lee - Although within Asia has grown rapidly, much of it has been feeding China's assemblers who export final goods outside Asia meaning that intra-Asian trade remains hostage to extra-regional demand. Link

Despite concerns about North Korea’s projectile test, China opposes new sanctions

James Bone and Richard Lloyd Parry - China and Russia, which have veto power in the Security Council, signaled they would oppose any new sanctions, especially as North Korea said that the projectile was the vehicle for a satellite, not a missile. Link

China File Extra

China’s Communist Party – Atrophy and Adaptation, University of California Press - 2009

David Shimbaugh digs deep into how the CCP has evolved, presenting us an inside view into how this complex institution has adapted itself to changing circunstances at the internal, national and international levels.