Chinese Growing Pains - Problems for the US and the World

As attempts to elevate the US-Chinese bilateral relationship get underway through the creation of a G-2 to address global problems such as the international financial crisis, the proliferation of weapons of mass destruction and climate change, it is important to remember that such a strong relationship between the two countries does not already exist because their values, capabilities and interests have always been mismatched. Instead, the US should seek the assistance of the international community to deal with the problems created by China's rise.

Much of China's incompatibility with the West stems from its need for export markets and resources and its determination to not use its economic leverage for political gains. These values often bring China into opposition with the West's efforts to prevent human rights abuses in the developing world in the following ways:

• China's ongoing arms trade in Sudan and Zimbabwe has contributed to instability there, despite being urged by the rest of the world to restrain weapons sales.

• The Chinese concept of sovereignty has prevented it from supporting humanitarian intervention into countries where its state-owned businesses have vast resource holdings and development interests, such as Angola, the Democratic Republic of the Congo and Myanmar. In September 2007, China and Russia blocked a UN Security Council resolution that condemned Myanmar for using force against Buddhist monks that were leading antigovernment protests. Instead, China insisted that these actions were merely an internal affair.

• China opposes sanctions against Iran due to its growing dependence on imported oil and gas.

• A lack of transparency and accountability in China's authoritarian system inevitably makes cooperation on issues such as product safety difficult. The economic incentives felt by local actors to maintain the status quo undermine efforts to comply with international obligations.

• A lack of transparency with regards to military capabilities may allow China, as the weaker power, to use uncertainty as a deterrent. The US believes that transparency would allow China's neighbours to gauge its intentions and avoid mishaps.

• The US wants China to reform its currency and to enact effective intellectual property rights, whereas China aims to conduct business in the way it sees fit.

• The Chinese government's strategy of aggressively promoting growth through investments by state-owned entities, and accompanying this with regulatory measures to ensure the state's continued dominance of the economy, not only reverses previous market-based reforms and privatisation but also stifles foreign and domestic competitors within China. However, this largely reflects the current global trend of state capitalism, whereby states have rejected the free-market doctrine through excessive intervention to secure the survival of key industries. In China it is doubtful that these interventions will be temporary, and the fear is that politicians will over-regulate the economy, making it inefficient, corrupt and stripping it of its ability to innovate.

The primary goal for the US must therefore remain true market-oriented reform in China through greater liberalisation and a commitment that Beijing will open state-owned companies to foreign investors. Resolutions of other issues must be pursued with the help of the countries over which China believes it wields considerable influence; the developing world. The US must therefore engage with these new allies to fulfil its objectives.

Chinese Investment in Africa

China has decided to increase its China-Africa Development Fund by $2 billion. This state-controlled equity fund has so far invested in 20 projects across Africa since it was established in June 2007. The current global recession, which has caused many Western investors to withdraw their investments from Africa, will provide further encouragement for Chinese businesses to operate on the continent. The official purpose of the fund, according to a speech made by Chinese president Hu Jintao in 2006, was to deepen Chinese aid to Africa through an extensive package of assistance, trade, investment and construction projects. However, it has become increasingly evident that the true reasons behind this extensive investment commitment are, firstly, to secure China’s access to the natural resources it requires to keep its economic expansion progressing, and secondly, to gain support from African states at the United Nations.

The Chinese National Offshore Oil Corporation intended to boost output from 40.3 million tonnes in 2006 to 78 million tonnes in 2007. In order to achieve such a growth rate China has had to continually assist its oil companies to invest in regions where Western firms are extremely reluctant to do so, due to their uncertain political and legal environments and precarious stability. As such, China will fund infrastructure projects in countries subject to Western sanctions, such as Sudan, or where security issues deter Western firms from increasing levels of investment, such as Nigeria. An example of such a strategy can be seen in China’s willingness to enter Somalia's oil industry. Evidently therefore, China would rather secure control of natural resources at their source rather than purchase them on the global markets. This readiness to deal with regions that are considered out of bounds by Western competitors may be explained by the lack of political influence and technical expertise of Chinese oil firms.

Whilst initial Chinese activity in Africa was well received, particularly due to the absence of any colonial history between China and the recipients of its investments, China’s practices have caused growing concern across the continent, as its actions are often seen as supporting and prolonging the lives of corrupt or dictatorial regimes. Beijing has attempted to dispel this perception by investing in infrastructure projects in areas where resentment is strongest and by granting local businesses greater access to China's markets in selected industries. Beijing has provided the Angolan government with a total of $2 billion in loans in exchange for continuous oil supplies. This investment has undoubtedly allowed Angola to avoid implementing reforms demanded by Western governments and investors, yet the country has seen its prosperity greatly increase from its large-scale oil production. Angola’s ruling party has also signed an agreement with China which contains a proviso that 70% of all construction projects will be awarded to Chinese companies. Moreover, Angola has since become China’s primary source of oil. Whilst some of this money has been able to fund improvements in infrastructure and healthcare, the endemic corruption has prevented the optimal amount of funds from reaching these projects. Furthermore, China has been criticised for its relationship with Sudan, whose government has been condemned by the international community for the humanitarian crisis in Darfur. Sudan has gradually become the number one recipient of Chinese investments due to its vast oil reserves. However, it cannot be denied that Sudanese workers are acquiring new skills through the availability of Chinese funded work, and that throughout the continent the Chinese are building factories which will allow many other countries to benefit in much the same way.

Zhang Junsai, Chinese ambassador to Australia, has said that Chinese companies investing in Australia and elsewhere are merely seeking long-term, sound and reliable supplies of energy, rather than absolute control of a foreign country’s natural resources. The Chinese government is unlikely to demand compliance with internationally recognised human rights standards, as it often disregards these norms internally. Perhaps with increased prosperity, work opportunities and improved infrastructure, African countries can be stabilised and encouraged to effectuate the necessary institutional reforms by their own people, without the ineffective and often-ignored calls of the international community.