Posts tagged: Marcy Nicks Moody

Recent Violence in China – A Reflection of Income Inequalities

childrenRegular China Law & Policy blogger, Marcy Nicks Moody, just posted an interesting piece over at Foreign Policy Digest.  In the past three months, China has seen a spate of killings of children, mostly kindergarteners while attending school.  Why this sudden rise in gruesome murders in a society that places so much emphasis on “social stability” and seeks to establish a “harmonious society”?  In ‘Some Got Rich First–and Richer Later: The Uneven Nature of China’s Economic Development,’ Marcy looks at these horrific incidents, contemplates possible causes and finds the growing income inequality in China as a possible reason.

Some Got Rich First—and Richer Later: The Uneven Nature of China’s Economic Development

By Marcy Nicks Moody

Over the last two months, a spate of violent attacks against schoolchildren in China’s eastern provinces have heightened authorities’ concerns about the instability of China’s poor and mentally ill, many of whom feel left behind as the rest of China gets wealthier.   On March 23, a retired doctor, reportedly driven by a desire to take revenge on the rich, stormed a local elementary school in the southeastern province of Fujian and stabbed eight children to death, injuring five others.  The shocking incident inspired four copycat killing sprees by unemployed or under-employed adult males, most of whom reportedly suffered from mental illness.  The killings highlight the need for a better social safety net and social welfare services for the mentally ill, and put into sharp focus the uneven nature of China’s economic development and its concomitant social pressures.  Soaring income inequality, widespread perceptions of helplessness and the corrupt, self-seeking behavior of some Chinese government officials have become part of the public debate as the world seeks to understand these tragedies and China seeks to prevent future ones.

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Happy 40th? – Congress Says Bye, Bye Climate Change Legislation

By , April 27, 2010

HappyEarthDayWith the fortieth anniversary of Earth Day this past April, Americans celebrated with vigor and advocated saving the planet.  Well, most Americans did.  As China-observer Marcy Nicks Moody notes, recent breakdown between Democrats and Republicans in the Senate could forestall any hope of the U.S. moving forward on climate change legislation.  And could allow China to remain ahead of the green technology game for a long time.

Happy 40th? – Congress Says Bye, Bye Climate Change Legislation

By Marcy Nicks Moody

Last Thursday, Americans celebrated the fortieth anniversary of Earth Day, established by U.S. Senator Gaylord

Earth Day Founder, Sen. Gaylord Nelson

Earth Day Founder, Sen. Gaylord Nelson

Nelson in 1970 to raise awareness of environment-related issues. Last Sunday, thousands gathered on the National Mall in Washington, DC to participate in the Earth Day Climate Rally with the alleged goals to “stop protecting polluters,” “enact comprehensive climate legislation,” and “demand accountability from Washington.” There were exhortations to grow kitchen gardens along with clamorous chanting of the word ‘green.’ The weather was glorious, and spirits did not seem dampened by the blow dealt to climate legislation by the U.S. Senate just the day before.

Sandwiched between Earth Day and the Earth Day Climate Rally was the day on which another U.S. Senator, Republican Lindsey Graham of South Carolina, announced that he would no longer participate in negotiations on a Senate version of proposed climate legislation. In a letter to colleagues Senators John Kerry (D-MA) and Joseph I. Lieberman (I-CT), Senator Graham cited his disappointment over reports that the Democratic leadership of the Senate was planning to take up discussions of immigration before addressing climate change as a reason for his changed stance.

Senators Graham, Kerry, and Lieberman were the primary architects of this bill-to-be and had been planning to formally announce the bill with the White House last Monday. But any debate on immigration would make it impossible to deal with national energy and climate change policy, the South Carolina Senator said. So he won’t support the draft climate change bill, in spite of the fact that he helped create it. Senator Graham won’t support some legislation because talking about something else would just be too painful or distracting? This seems a bit irrational.

In Happier Times - Senators Graham, Kerry & Lieberman

In Happier Times - Senators Graham, Kerry & Lieberman

Setting aside speculation over why Senator Graham radically and suddenly changed positions, the simple fact that he did it is disappointing. To be sure, the Senator is not the only culpable party in this turn of events. He is likely under enormous pressure from fellow Republicans to stop negotiating with Democrats. And if reports are true that both the White House and the Democratic Senate leadership had been planning to take up immigration first not because it could pass (the House has not yet discussed the matter) or because it is more urgent (climate change is equally as urgent: the longer we wait to address climate change, the more expensive it will be), but because it could present a useful wedge issue for the Democrats in the coming election cycle, then Senator Graham has every right to be peeved.

But unless Graham’s strategy has the result of getting climate change legislation considered in this session of Congress, it is bad for Americans. The science demonstrating the negative and possibly catastrophic consequences of anthropogenic climate change is overwhelming. That emissions of greenhouse gases (GHGs) must decrease is flagrantly obvious. And that the United States, which prides itself on its innovative strength, global leadership, and remains the largest economy in the world, has still not acted on this evidence is disgraceful.

It is also bad for business. The clean technology market is big and growing, but without the passage of climate change legislation, signals to U.S. businesses as to the future prices of clean versus pollution-intensive energy remain unclear. A recent Pew report on clean energy in the G-20 economies notes that appropriate domestic policies—such as those aimed at reducing GHG emissions or incentivizing the use of renewable energy—have tended to positively affect a country’s competitive position in the clean-tech market. The winners in this race include Brazil, the United Kingdom, Germany, Spain, and—who else?—China. The United States does not make the shortlist of enlightened energy and environment policymakers of the rich world.

Lights out for the U.S. in the race for green tech?

Lights out for the U.S. in the race for green tech?

In fact, the Pew report finds that China has already overtaken the United States on several important measures (including, of course, its dubious distinction of being the largest emitter of greenhouse gasses for the past several years). In 2009, for instance, China overtook the United States for highest financing of and investment in clean energy. And it is likely to overtake the United States in installed renewable energy capacity soon. Though targets are not always met, Beijing has set ambitious targets for wind, biomass, and solar energy usage, and these targets do not exist solely not to be met. They may currently be aspirations, but that’s more than the United States currently has to go on.

Mitigating climate change and making U.S. clean-tech business better is accomplished by limiting greenhouse gas emissions. The best way to limit GHG emissions is to put a price on them. Indeed, the fact markets have not already done so has been described by climate expert Nicholas Stern as “the greatest market failure the world has ever seen.” The climate legislation which has been stalled and stalled and stalled again in the U.S. Senate is generally envisaged as a cap and trade system that would cap GHG emissions at a certain level, create a scheme in which licenses to emit GHGs could be traded, and eventually shrink gross amount of permissible emissions. This amounts to an indirect tax on GHG emissions, and though it is far from ideal, it would create a price for emissions at the margin and therefore makes strides in the right direction.

As the Senate continues to dawdle, the Earth Day Climate Change rally on the National Mall was far from unimportant. Especially in a democracy like the United States, it is important that citizens buy into ‘going green.’ It is important, frankly, that green be cool. But though considerations of how to green one’s lifestyle are admirable, they are not game changers. Coal is still cheap; Whole Foods is expensive, and “going green” remains largely the privilege of the wealthy in society.  Unless we change our laws.  The Senate should get to work. The alternative is to accept an outcome in which a hundred U.S. kitchen gardens bloom while a hundred Chinese companies compete for the top spots in clean-tech. In addition to, well, catastrophic climate change.

Marcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

Will China Float its Currency?

By , April 16, 2010
Will China allow its currency to float?

Will China allow its currency to float?

As Marcy Nicks Moody pointed out in her article, “A Dusty Springfield Approach to the Chinese Exchange Rate,” the Treasury Department was to release its report on international economic and exchange rate policies on April 15.  But last week, Treasury Secretary Tim Geithner announced that he would delay the release of the report  noting that key meetings with world leaders in the upcoming months necessitated the delay.  Many saw this as a sign that the U.S. was in dialogue with the Chinese about the exchange rate with the real possibility that China would give its currency some freedom.

But in today’s New York Times, Michael Wines reports that perhaps we shouldn’t be so sure.  Domestic fiscal and monetary policy issues are pushing Chinese leaders not to float the yuan, Chinese currency (a.k.a. the renminbi or RMB).  Interestingly, the online version of this article has the title “China’s Recovery Keeps Focus on Interest Rates and Currency” while the title in today’s paper version is the more explosive “China Move on Currency Not at Hand.”

So will China succumb to foreign pressure or will it remain focused on its own recovery and not look to change its currency policy just yet?  You decide.  Take our poll on this issue listed on the left hand side of the website.  Results will be posted next Friday, April 23.

In the Aftermath of Haiti’s Earthquake: Where is China?

By , March 31, 2010

haiti_flagAlmost three months ago, the world witnessed an agonizing tragedy in Haiti: an earthquake killing hundreds of thousands and displacing millions in one of the world’s poorest countries.  Other countries were quick to respond, offering aid and assistance.  But how did the world’s emerging superpower respond?  In this informative essay, Marcy Nicks Moody examines China’s response to the Haiti earthquake, arguably China’s first chance to show the world that it is a responsible global leader.

In the Aftermath of Haiti’s Earthquake: Where is China?

By Marcy Nicks Moody

Though Haiti’s plight no longer appears above the fold of our daily newspapers, it remains one of the world’s most dire. At least 230,000 lives were lost in the earthquake of January 12. More than 300,000 people were injured, and at least 1.3 million were left homeless. This would be a catastrophe anywhere, but for a country of some 10 million, the proportion is gargantuan. More than two months following the magnitude 7.0 quake, shelter, security, and sanitation remain inadequate, and people live in camps of tents and tarpaulins, unlikely to move to more permanent dwellings any time soon.

The international community has responded to the tragedy in Haiti with laudable humanitarian assistance as well as more extended commitments to help “build [Haiti] back better,” and just today, the United Nations and United States co-hosted an International Donors Conference to mobilize support as Haiti lays the foundation for its long-term reconstruction and development. The financial resources necessary for this undertaking are huge: $11.5 billion now, $34.4 billion over the next decade, or five years to Haiti’s current GDP.

Chinese Aid Workers in Haiti

Chinese Aid Workers in Haiti

For China watchers, this conference—and, more importantly, the commitments made at it—may provide further insight into the status of China’s global influence. There has been much ado about China’s arrival on the world stage since its apparent and early exit from the nadir of the economic crisis. And over the last several months, Beijing has increasingly comported itself in such a way as to suggest that it believes in the veracity and longevity of this arrival. Largely, this has taken the form of vitriolic verbiage on issues ranging from Copenhagen to Tibet to its exchange rate. But there are better metrics for global influence than causticity. One of these is a country’s response to other countries in times of need.

Haiti is a particularly interesting case in that it is one of fewer than twenty-five countries left in the world that maintains diplomatic relations with Taiwan in lieu of the People’s Republic. Beijing’s traditional response to such countries—often poor ones in Africa and the Caribbean—has generally been a deep-pocketed charm offensive, with preferential loans and big investments. Cynical though it may sound, Haiti’s crisis could be seen as China’s opportunity to curry favor with—or extract a quid pro quo from—a country with which it would like to have diplomatic relations.

Indeed, China has already taken a number of steps to wean countries in the Caribbean and Latin America from Taiwan.

Sichuan Earthquake

Sichuan Earthquake

China is a non-borrowing member of both the Caribbean Development Bank as well as the much larger Inter-American Development Bank (IADB), meaning it provides capital but takes no money in return. Though in the latter case, IADB procurement contracts for Chinese firms was also an important motivation for joining, it was not the only one. Moreover, Chinese—in Beijing and elsewhere—understand the tragedy an earthquake can wreak better than many, or perhaps most. On May 12, 2008, a magnitude 7.5 earthquake struck Sichuan Province, killing almost 90,000, injuring 360,000, and leaving 5 million homeless. Like Haiti, poor building construction contributed to the scale of human loss. The outpouring of emotion and assistance was immense. With such a horrible tragedy in China’s recent past, one might think that China might sympathize with Haiti’s plight.

But China’s response to the Haitian earthquake has not been as generous as either of these arguments would suggest. Beijing has donated $1 million to the emergency aid efforts, and does not yet appear to have made longer term commitments. It is not among the ranks of the largest donors, which include the United States, Brazil, Canada, and the European Union. The United States, for example, immediately pledged $100 million for the relief effort, and Congress is considering an additional aid package of $2.8 billion. That said, a 125 member search-and-rescue team, medics, and aid supplies coming from China were the first to reach Haiti. The tragedy has not gone unnoticed in China.

So why has China done so little? To be sure, Beijing does not tend to view its assistance activities as ‘foreign aid,’ but rather frames them as offering help to brother or sister countries in times of need. With a quasi-colonial history of its own, China tends to avoid activities that may smack of imperialism or appear to encroach upon a country’s sovereignty. This may be why China avoids national-level coordination efforts and refrains from coordinating donor activities. However, avoiding international coordination now, which may be part of China’s reasons for remaining relatively inactive, will do Haiti no good.

Moreover, Haiti’s relatively small size and vast humanitarian tragedy, coupled with China’s phenomenal ability to execute construction and public works projects in minimal time, present an extraordinary opportunity to showcase China’s arrival and its ‘harmonious’ foreign policy, not just in Haiti or Latin America, but to the world. As Beijing continues to be roiled by the public relations disaster that is its dispute with Google, Haiti is a place in which China could do well. It might actually do some good, too.

Marcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

A Dusty Springfield Approach to the Chinese Exchange Rate?

By , March 21, 2010

Not a day goes by without mention of China and its currency: “China’s manipulating its currency, injuring the U.S.” “No it’s not, and if it were, it only hurts the Chinese people.”  Guest blogger Marcy Nicks Moody tries to make sense of it all and examines the mechanics underlying the Treasury Department’s pending decision to either designate China a currency manipulator or not.

A Dusty Springfield Approach to the Chinese Exchange Rate?

Will China allow its currency to float?

Will China allow its currency to float?

By Marcy Nicks Moody

Last week, in a discussion about the administration’s approach to China’s exchange rate policy, White House press secretary Robert Gibbs remarked that President Obama “mentioned just a few days ago that he wished and hoped that China approached their currency using a more market-based interpretation.”

If only wishing and hoping were the ne plus ultra of sound policy-making. Unfortunately, they’re not. And Mr. Gibbs’ comment was more revealing of his administration’s approach to the Chinese exchange rate than he may have hoped. Or wished.

On a more or less biannual basis, chatter over China’s undervalued currency increases, coinciding with a report that the Treasury Department must submit to Congress on international economic and exchange rate policies. This is the document in which a country is formally designated a currency manipulator or, in the case of China or any other country since 1994, is not.

Does China manipulate its currency? Yes. This fact is well-known and rarely questioned. The gargantuan scale of its global trade and current account surpluses and rate at which China is intervening and accumulating foreign exchange reserves to keep the renminbi (“RMB”) from appreciating make it all but impossible to argue otherwise.

But does China intend to manipulate its currency in order to gain an unfair trade advantage? Well yes, but this is part of the legal metric by which China must be judged in the foreign exchange report, and it remains the technical basis on which the Treasury sidesteps formally designating China a manipulator of its currency. The arguments for so doing do not include any serious contention that China does not intend to manipulate its currency, but rather that engagement works better than saber-rattling.

That is one possibility. Another is that there is no saber. What if China were designated a currency manipulator in a Treasury report to Congress? Would the administration huff and puff and hold its breath until all of Washington turned blue? That might be the best option, for nothing necessarily follows from the findings in these reports, other than expedited negotiations, which are fancy words with few teeth. And demonstration of ineffectiveness on an important issue is something the Treasury might understandably like to avoid. Naming China a currency manipulator would strain relations further but in itself provide no foreseeable gain. And besides, the whole world knows it anyway – it’s not like the report would be telling us anything we didn’t already know.

The U.S. Treasury - preparing its April 15 report

The U.S. Treasury - preparing its April 15 report

Though the Treasury Department’s stance is far from principled, it does have some weight. But the exceptionalist tone of this stance—which suggests that China is exempt from Treasury censure because of some special status it holds—may well damage U.S.-China relations in the longer term. For years, the United States has encouraged China to act as a responsible stakeholder in the global economic and financial system, playing by the rules China increasingly helps to write. Allowing China to escape criticism for undervaluing its currency simply because ‘it is China’ runs counter to the notion of that stakeholder. Given the belligerent tone Beijing has recently taken on a range of foreign policy issues from Copenhagen to the Dalai Lama’s recent U.S. visit to exchange rate policy itself, the United States would do well to move away from this more recent G2-style exceptionalism and towards responsible stakeholdership in its rhetoric and substantive discussions with China.

Moreover, American concern about undervaluation of the RMB dates to at least 2003. Modest appreciation notwithstanding, engaging and talking softly behind closed doors have not worked. That Chinese surpluses cost Americans jobs should be an abomination to Washington, especially now, as unemployment remains unacceptably high. China is unlikely to move on its exchange rate unless it perceives that doing so would be in its own interest, and for better or for worse, it is up to Washington to create that incentive.

Might a Treasury report designating China a currency manipulator encourage China to move on its exchange rate? Let’s be clear: This is only a document submitted by one branch of the federal government to another, and by itself, the report does little. But might a Treasury report designating China a currency manipulator trigger other events that could encourage China to move on its exchange rate? Congress may be emboldened to pass legislation mandating countervailing duties on goods from countries with misaligned currencies. Indeed, even without the Treasury’s report, which isn’t due until April 15, Congress has already started to move forward on the issue. There is currently a bill with unusual bipartisan support in the Senate that would give Treasury less flexibility in determining whether a country manipulates its currency. Further, the Chinese exchange rate is not solely a U.S. problem. If Washington did, for example, undertake trade sanctions, the frustrated international community would likely follow suit. And this would create a strong incentive for China to allow the RMB to appreciate.

A Treasury report designating China a currency manipulator is unlikely, by itself, to produce any results vis-à-vis the RMB. And it might not even trigger events that would compel China to allow the RMB to appreciate. But it might. The current state of affairs is unacceptable, and as even Dusty Springfield knows, wishin’ and hopin’ and dreamin’ and prayin’ are not enough.

Marcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

Something Rotten in Denmark: What the U.S. & China Need to Do to Make the Most of Copenhagen

By , November 25, 2009
The Copenhagen Conference on Climate Change is set to start in less than two weeks.  Guest blogger Marcy Nicks Moody offers her assessment of what’s left of the road to Copenhagen and the necessary role the U.S. and China must play to move discussions forward.

Something Rotten in Denmark: What the United States & China Need to Do to Make the Most of Copenhagen

By Marcy Nicks Moody

Earlier this month, Danish Prime Minister Lars Lokke Rasmussen flew to Singapore to meet with President Obama and

Danish Prime Minister Lars Lokke Rasmussen, trying to save the Copenhagen Conference

Danish Prime Minister Lars Lokke Rasmussen, trying to save the Copenhagen Conference

other leaders on the sidelines of the Asia Pacific Economic Cooperation (APEC) Leaders Summit. With less than one month until the United Nations Climate Change Conference opens in Copenhagen on December 7 and little in the way progress on the negotiations, the APEC leaders and Danish Prime Minister discussed metrics for the success of the talks. APEC, an organization widely known for accomplishing little, served as an all too fitting forum for an announcement that a legally binding agreement is not going to emerge from the Copenhagen conference.

Though the announcement simply confirmed the writing already on the wall for those familiar with the negotiations, it was nonetheless disappointing. The terms of the Kyoto Protocol will expire in 2012, and a ‘Copenhagen Protocol’ to replace Kyoto has been a key goal for some time.

Indeed, the history leading up to Copenhagen is far from short. The aforementioned Kyoto Protocol is a legally binding protocol to the 1992 United Nations Framework Convention on Climate Change (UNFCCC). And the UNFCCC, in turn, is a non-binding treaty aimed at stabilizing greenhouse gas (GHG) concentrations in the atmosphere in order to prevent severe changes in the world’s climate. It is, so to speak, the fountainhead of global climate change negotiations.

Moreover, though 182 countries (with the notable exception of the United States) are signatories to Kyoto, only 37 of these are bound to limit GHG emissions. Since Kyoto, climate science has become more precise, the price tag associated with the consequences of climate change has become more daunting, and the need for a broader global agreement has become more pressing. To that end, during the 2007 UN Climate Change Conference, an accord called the Bali Action Plan called for a new legally binding climate change agreement to be finalized by the 2009 conference in Copenhagen, with the aim of it going into force in 2013. Since the administration of George W. Bush proved generally unfriendly to restrictions on carbon emissions, it was hoped that 2009 would be the earliest point at which a broader global agreement could be reached.

The lack of a successor to Kyoto is not just disappointing, it will also be costly. The International Energy Agency’s 2009 World Energy Outlook estimates that each year of delay before moving to an emissions path consistent with the agreed level of a 2° C temperature increase will add $500 billion to the global incremental investment cost of $10.5 trillion for the period between 2010 and 2030. A new global climate change agreement is not simply necessary, it’s urgent.

Though the Obama administration is much more serious about climate change than the Bush administration was, U.S. negotiators have nonetheless had little to offer their foreign counterparts. In particular, the Senate does not plan to begin debating Waxman-Markey, the relatively stringent climate change bill passed by the House of Representatives, until next year. With the world’s strongest economy and largest historic emitter of greenhouse gases currently uncommitted to binding emissions targets, why would the rest of the world possibly want to offer up pledges of its own?

On Monday, Danish Ambassador to the United States Friis Arne Petersen published an article in The New York Times arguing that “Yes we can reach a strong, comprehensive and global agreement next month.” His letter, likely an attempt to control the reputational damage done to Copenhagen during APEC, makes the case for a ‘political agreement,’ with the goal of really, actually deciding upon a timeline for a successor to Kyoto this time. On the one hand, locking in progress made seems like a reasonable way to salvage failed dreams for Copenhagen. On the other, however, a “politically binding” agreement – as opposed to a legal one – will likely lack the teeth to be enforceable. Whatever emissions targets emerge from Copenhagen may thus evolve into nothing more than numbers on pieces of paper.

Can the U.S. & China Save Copenhagen?

Can the U.S. & China Save Copenhagen?

In spite of Senate sluggishness, however, officials in the Obama administration have been hinting that they will try to provide momentum by bringing something to the table in Copenhagen next month, and the other elephant in the global climate room—China—did agree to language in a joint statement during Obama’s Asia trip indicating that a comprehensive agreement would “include emission reduction targets of developed countries and nationally appropriate mitigation actions of developing countries.” Some may scoff, but it’s better than nothing. And though it is currently the world’s largest GHG emitter, China is far from ignorant about the dangers of local pollution and global climate change.

One way in which the United States and China could reinvigorate climate change negotiations is by articulating a broad agreement (one which has not yet been reached) on the differentiation of financial responsibilities for mitigation and adaptation. The United States and China are, of course, the world’s most prominent emitters from the developed and developing worlds. How they plan to account for these very different roles would be a useful outcome of Copenhagen.

A legally binding agreement is, tragically (and expensively), out of the question, but Copenhagen is still not a foregone conclusion. China Law & Policy will keep its fingers crossed that the United States and China will give some momentum to the process, and that we can really, actually have an agreement in Mexico in 2010.

Marcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

Rebalancing the Chinese Economy

By , October 30, 2009

The third and final in a series of articles regarding China, On the Road to 2025.  Click here for Part 1; Here for Part 2.

On October 19, the Council on Foreign Relations and Project 2049 Institute cosponsored “China 2025,” a conference exploring where China may be in the next 15 to 20 years. Guest blogger Marcy Nicks Moody seeks to illuminate several of the arguments made and issues discussed, namely, domestic trends, foreign policy, and the economic outlook.

Rebalancing the Chinese Economy

By Marcy Nicks Moody

Stephen Roach of Morgan Stanley Asia

Stephen Roach of Morgan Stanley Asia

One of the keynote speakers of “China 2025” was Stephen Roach, Chairman of Morgan Stanley Asia, who discussed China’s economic outlook. Roach opened his speech with two observations which formed the basis for his comments on the Chinese economy. First, he said, we should not forget that China’s growth benefits not just itself, but also the economies of Asia and the global economy more broadly. The second observation was not his originally, but Premier Wen Jiabao’s (pronounced When Gee-a Bao), who in March 2007 apparently described his country’s economy as being “unstable, unbalanced, uncoordinated, and unsustainable.”

Roach agreed with the Premier’s characterization. China has a supply-focused economy, with production of goods focused on external markets. Indeed, 80 percent of Chinese GDP goes to exports and export sector-led fixed investment, Roach said. Chinese economic growth has also been commodity intensive, requiring vast amounts of outbound investment to access resources and fuel further growth. The fragmentation of governance, corporate control, and the financial system makes the Chinese economy uncoordinated, and with increasing levels of pollution, the unsustainability of China’s growth model is further exacerbated.

After painting a broad picture of the Chinese economy, Roach went on to argue that China’s stimulus package, announced in November 2008, will only compound current imbalances. Seventy-two percent of the package, which had a headline figure of 4 trillion RMB ($586 billion), has gone to infrastructure, and fully 1 trillion RMB ($147 billion) have been allocated for post-earthquake reconstruction in Sichuan province. Not entirely surprising88 percent of growth was driven by fixed investment in the first half of 2009.

The approach is not novel for the Chinese. Similar packages were dispatched in response to the Asian financial crisis in 1997-98 and the slowdown of 2000-01. The general strategy, Roach said, is for growth to be “jump started” by fixed investment, after which the export machine takes over as external demand recovers. But this strategy will not work this time, Roach argued, since external demand—namely the demand of U.S. consumers—is not going to return to previous levels. For these reasons, Roach is predicting a slowdown in the Chinese economy around mid-2010.

Though the argument has some strength, there are also shadows. First,  the stimulus package did include some measures to stimulate household consumption and improve the social safety net which Roach did not mention. Roach should not have so lightly brushed off these measures, as it indicates China’s recognition of current imbalances and the political will to begin remedying them. Second, and related, is Roach’s implication that China either expects external demand to recover to its previous rate of growth or is too naïve to realize this is not going to happen. Arguing that China is either ignorant or in denial seems, to this author, at best unhelpful and more likely a mistake. U.S.-China cooperation over the course of the financial and economic crisis has been close, and China is well aware that the United States will likely not return to the spending patterns that directly preceded the financial crisis. The third issue that was ignored is that of exigency. Might some of the infrastructure spending prove to be inessential, or even superfluous? Will the spate in bank lending lead to a deterioration of credit? Might Beijing deem the stimulus to be ‘worth it’ anyway? Might we? It’s an open question without a clear answer, but was not addressed.

But beyond the stimulus, how will China escape from this unstable, unbalanced, uncoordinated, and unsustainable pattern of growth? One common argument is that the Chinese economy needs to shift away from its current focus on investment and exports, and towards a model based more on private consumption. But as Roach noted, households’ saving in China remains high, because families need to hedge against uncertainties over the provision of healthcare, education, and pensions. To increase consumption and therefore rebalance the Chinese economy, then, one of the key structural changes required is the strengthening of the social safety net, Roach argued.

Also of note is the fact that household incomes in China have not been rising as quickly as national income. That the Chinese government needs to strengthen the social safety net is irrefutable, but measures to increase household incomes, which are not limited to policies that would increase government transfers to households—such as addressing weaknesses in the financial sector, for example—will also play an important role as China seeks to rebalance its economy.

Happy Wen Jiabao

Happy Wen Jiabao

In closing, Roach outlined five of the benefits that would accompany a rebalanced Chinese economy. First, shifting the pattern of growth from a supply to a domestic demand-oriented model would create more stable growth. It would also broaden support for consumer demand, reduce external imbalances, lower the resource intensity of Chinese GDP, and encourage the growth of China’s services sector. In brief, it could help create a Chinese economy that is more stable, balanced, coordinated, and sustainable. Wen would be happy.

Marcy-NicksMarcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

China As a Global Superpower: Merely Aspirational or Actually Achievable?

By , October 29, 2009

The second in a series of three articles regarding China, On the Road to 2025.  Click here for Part 1.

On October 19, the Council on Foreign Relations and Project 2049 Institute cosponsored “China 2025,” a conference exploring where China may be in the next 15 to 20 years. Guest blogger Marcy Nicks Moody seeks to illuminate several of the arguments made and issues discussed, namely, domestic trends, foreign policy, and the economic outlook.

China set to rule the world?

China set to rule the world?

China Goes Global or Thinks Local?

by Marcy Nicks Moody

The second panel in last week’s “China 2025” conference covered a range of topics related to China’s foreign policy, falling under the loose rubric of “China Goes Global.” Michael A. Levi and Adam Segal, both of the Council on Foreign Relations, discussed two functional areas of Chinese foreign policy, namely climate and technology policy, while Ambassador David H. Shinn of George Washington University and Evan A. Feigenbaum of the Council on Foreign Relations addressed regional issues.

Though he was not the first to speak, Ambassador Shinn provided a useful framework for understanding not just China-Africa relations, but Chinese foreign policy-making more broadly. Three of China’s core interests in Africa, he argued, are its needs for (1) resources, (2) political support, and (3) productive commercial ties. With regard to the first of these, China has of course sought access to a range of Africa’s natural resources such as petroleum, timber, and minerals. In terms of China’s second need, though political support from African nations may not seem, on its face, as though it would be of extraordinary importance to China, Ambassador Shinn noted that four of the 53 African countries have diplomatic relations with Taiwan. For China, eliminating support of policies at odds with the “one China” policy is imperative, and Beijing spends a relatively large amount of time and effort in attempt to woo these four countries away from their current policies. Third, though Africa is not among China’s largest trading partners, China is Africa’s second largest trading partner, after the United States. And, China will likely become Africa’s largest trading partner next year, said Shinn.

Locating these three drivers of Chinese foreign policy – access to resources, political support, and an international environment conducive to economic growth – provides a useful understanding of what motivates China in its approach to the rest of the world.  Indeed, as an authoritarian government with sometimes questionable legitimacy, much of the Party-state’s justification for a continuation of its rule is now located in its abilities to increase the economic wealth of its citizens and to gain respect and exert influence internationally. Accessing the tools and conditions for economic growth as well as gaining outside political support therefore become crucial to the life of the Party-state. Though perhaps easy to ignore, the role of China’s domestic needs in its foreign policy decisions should not be underestimated.

As we seek to better understand Chinese foreign policy, its ‘go global’ policies, and their possible effects on U.S. interests, there are other myths which need to be dispelled. In their presentations on climate and technology policy, both Levi and Segal made particular note one of the idiosyncrasies of U.S. discussions and media presentations of China—that is, of the propensity for focusing on gross numbers and their Brobdingnagian dimensions. All numbers in China, both noted, are huge. But that does not necessarily make them meaningful. Segal noted, for example, that there has been an enormous increase in spending on research and development in China, but that innovation is more than simply spending. And expectations that China will become a technological superpower by 2025 are likely overblown. Similarly, China should not be viewed as eating U.S. lunch on clean-tech just because it is producing enormous quantities of solar panels, or has calls in its 11th Five Year Plan for reductions of 20 percent in energy intensity. With regard to the latter, China has created targets, not outcomes, and few, if any of these are on track to be achieved.

In sum, Adam Segal’s argument that China has embraced but will not profoundly change the global science and technology system is perhaps the most balanced view of Chinese ‘go global’ policies more generally. Many such policies and pronunciations are aspirational, but not, by 2025, achievable.

Marcy-NicksMarcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

The Center is Holding, with Troubles at the Periphery

By , October 23, 2009

The first in a series of three articles on “China – On the Road to 2025.”

On October 19, the Council on Foreign Relations and Project 2049 Institute cosponsored “China 2025,” a conference exploring where China may be in the next 15 to 20 years. Guest blogger Marcy Nicks Moody seeks to illuminate several of the arguments made and issues discussed, namely, domestic trends, foreign policy, and the economic outlook.

Lingerie entrepreneur Zhou “The Wolf” Yu from Win in China. Could more wolves make better governance?

Lingerie entrepreneur Zhou “The Wolf” Yu from Win in China. Could more wolves make better governance?

The Center is Holding, with Troubles at the Periphery

by Marcy Nicks Moody

As discussed in a previous post, the October 1 celebrations of the 60th anniversary of the founding of the People’s Republic were spectacular. President Hu Jintao’s updated Mao jacket, the Mount Everest float, and the female soldiers with fuschia miniskirts and submachine guns were all flawless, if unlikely. Mostly a parade of military weapons systems, the celebrations were an extraordinary display of pride in what China has accomplished over the last 60 years, and confidence in what it will accomplish over the next.

Since the beginning of ‘reform and opening’ (the period starting in 1978 when new leader Deng Xiaoping first instituted China’s economic reforms), China has consistently defied expectations about what it can accomplish. When considering where China will be in 2025, then, thinking not about where we, the outside observers, expect China to be, but rather where China itself aspires to be is perhaps the more apt starting point. And the National Day parade may offer some insight into these aspirations: the Chinese Communist Party-state of October 1, 2009 is strong and confident; it clearly sees an important role for the People’s Republic internationally, and little release of political control nationally.

But this picture stands in contrast to the China of September 2009, during which dissidents were detained, social networking websites were blocked, and civil society was suppressed. Or the China of March 2009, when a Christie’s auction of Chinese antiquities elicited an uproar among the Chinese people as a symbolic attack on its culture. Last year, Bjork, the Icelandic pop singer otherwise known for her off-beat sartorial choices, produced a similar response from the Chinese people when she called for independence for Tibet. Similar with Carrefour, the French big box store, which became the victim of a nation-wide boycott of foreign goods at the behest of a single Chinese blogger. The China of these moments finds disagreement unbearable, and portrays itself as easily harmed by the actions of relatively minor interlocutors. Strong and confident are not the appropriate descriptions of this picture.

How does one make sense of this divergence in tone?  At Monday’s “China 2025” conference, the first presenter, Minxin Pei of Claremont McKenna College argued that it is reflective of China’s domestic circumstances, which may be characterized by a combination of macro-level stability and micro-level instability. On the macro-level, there is no organized opposition to the Chinese Communist Party (CCP). China’s response to the economic crisis has been capable and robust, and there is increasing interest in the propagation of Chinese “soft power.”

Though center is holding, there are problems elsewhere. Four hundred CCP members are found guilty of corruption every day, said Professor Pei. There are 300 riots per day. Concerns about food and product safety cause great anxiety, and there is a major water pollution incident every three days. Kelley Currie, a Non-resident Fellow at the Project 2049 Institute and another speaker on the panel, noted tensions between the Han and other ethnicities at the periphery, including Tibetans, Uighurs, Manchus, and Mongols. Though none of these problems has occurred at the locus of CCP power, this dynamic, which Yanzhong Huang of Seton Hall University described as the central-local capacity gap in Chinese governance, poses a serious challenge to the effectiveness of domestic policy in China.

How, then, will micro-level instability affect China’s aspirations for and its path to 2025? To be sure, the Party-state currently has few effective methods for systematically addressing a range of local-level issues, including corruption, environmental degradation, ethnic unrest, and labor-related issues, which could eventually pose a more serious threat to the Party-state. More of an optimist, director of the documentary film Win in China Ole Schell observed that increased business and commercial activity may also drive increased transparency in China, while Professor Pei calls himself a cautious pessimist. This author, however, would rarely bet against China.

Marcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

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