January 02, 2010Rowan Callick, Asia-Pacific editor
The AustralianVerdant mountains cannot stop water flowing; eastward the water keeps on going.
THUS the headline for an article in which China's Xinhua news agency has responded to Western critics of the country's role in the recent climate change conference. It included a detailed account of the government's efforts, and of Premier Wen Jiabao's meetings during his 60 hours in Copenhagen for the summit.
It said, in defiance of attacks such as that of Britain's Climate Secretary Ed Miliband, who accused China of hijacking the event: "The Copenhagen conference has put China on a higher and broader world stage. China has reason to be proud, and China will work even harder!"
This process is now viewed in China -- and also in the rest of the world, underlined by China's crucial role, for better or worse, in Copenhagen -- as unstoppable as the rivers that flow east across its plains from the Himalayas.
The metaphor can be taken -- as appears to have been intended -- further: that the world's attention, its power and its wealth, will keep on going eastward too.
At the start of 2000, the professional seers had a common theme. The cautious prophets among them put their money on a place bet: this would be Asia's century. Those with more nerve cast it all on China.
Ten years on, the latter now look like clear winners. Asia is mostly doing fine. But the real influence on our daily lives is coming from China.
Everything is shifting into focus as we prepare to start the century's second decade with the Year of the Tiger, a year astrologers traditionally associate with courage, assertiveness, turbulence, competitiveness and dynamism.
China is not exerting an influence that is unbalanced or bizarre, though. It is commensurate to its size.
Its population is one and a half times that of Europe even including Russia and Turkey, and four times that of the US. Its land area is about the same as Europe without Russia and Turkey.
As its economy catches up, it is natural that its overall influence is also building inexorably.
This began with Deng Xiaoping's opening of the manufacturing sector to foreign investors. Factory owners shut up shop in Taiwan and Hong Kong and re-opened in China, with dormitories alongside to accommodate the millions of workers who flooded from the countryside where they had been underemployed.
By the start of the 21st century, most goods bought in Australia already carried the stamp Made in China.
That remains the case. But some of those items are now being made by China: with some Chinese industrialists taking over from the foreign pioneers, developing their own businesses, and taking them offshore to places such as Vietnam or west Africa, where labour costs are even lower.
During the past decade, China's efficient production -- through which manufactures have become commodities, prone to constant price pressure -- has smothered inflation in the industrialised world, including in Australia. The prices of our flat-screen televisions, airconditioners, jeans and suits have mostly gone down.
No wonder Time magazine made "the Chinese worker" its runner-up to the US Federal Reserve Board's Ben Bernanke as person of the year for 2009.
In the financial year 1998-99, China was Australia's fifth biggest export market and total trade between the countries was $10 billion. Ten years later, trade had soared to $76.4bn and China had become Australia's top overall trading partner and second buyer of exports after Japan.
But China has also become a huge influence on daily life well beyond the Made in China products Australians buy, and the high proportion of Australian exports that China buys.
In 1999, there were 9000 Chinese students in Australia. Last year, there were almost 130,000.
In 1999, 40,000 Chinese tourists visited Australia. In 2008 356,000 came, and each spent on average more than visitors from almost every other country.
It would be unusual not to overhear at least one conversation being held in Mandarin on almost any train, tram or bus in Australia's main cities.
In the four months to last October, migrants from China for the first time exceeded those from Britain and New Zealand. There were 6350 from China -- increasing at 15 per cent a year -- 5800 from Britain and 4740 from NZ.
The extent of the controversies between China and Australia that flared last year -- the arrest in Shanghai of Rio Tinto executive Stern Hu, attacks on Australia's governance of Chinese investment, protests by Beijing against the visit of Uighur activist Rebiya Kadeer and the showing of a film about her at the Melbourne Film Festival -- and the focus on these stories in the media, served to underline the importance of China rather than its remoteness.
Australians today respond in a more animated way to relations with China than with almost any other country.
China's spirited and articulate ambassador to Australia Zhang Junsai says: "Both countries have come to a consensus that we have to manage the differences that naturally occur when we have such different histories and cultures and levels of development.
"The leaders have kept in contact and kept talking" during the past year, despite the issues that have created friction, he says. These problems have emerged in a sense "because the relationship is getting closer, and the countries matter much more to each other".
Zhang, who has been living in Australia on and off for more than 11 years, adds: "Chinese people see in Australia a beautiful country with friendly and easygoing people, who are very frank. It's very easy to deal with. We share the same sense of humour."
The new visibility of Chinese people and culture on Australia's streets is starting to match the country's economic reach.
One of the crucial elements in China's newfound "soft power" is its sustained support for globalisation. It was formerly believed that the US was destined to be the prime beneficiary not only of the "end of history" following the collapse of the Soviet Union 20 years ago, but of the internationalisation of economies.
But China, too, is sharing in those benefits, as it becomes the new engine-room of global growth.
Many commentators anticipated that as China grew wealthier and more enmeshed with the global economy, it would not only become, in the words of World Bank president Robert Zoellick, a "responsible stakeholder" in the international system, but would also become more normal in a Western sense.
It was assumed that its growing middle class would demand greater liberalisation and democratisation. But that hasn't happened. That middle class, as the prime beneficiary of the established Chinese system, has become its staunchest supporter.
China's ruling Communist Party, recently celebrating 60 years in power a year after presiding over an extremely efficiently organised Olympic Games in Beijing, is cautiously -- because it still fears that its legitimacy remains fragile -- insisting that it will continue to rule alone, through the same institutions.
Despite the appeal, especially to Third World leaders, of the China model of governance, China has recently been reluctant to export its system. Projecting its national influence through "soft power" is one thing, but having other countries copy its institutions makes it uneasy.
If the China system fails to work elsewhere, failure could rebound on Beijing.
Thus, Wen said in November: "It seems to me that Africa's development should be based on its own conditions and should follow its own path, that is, the Africa model. All countries have to learn from other countries' experience in development."
At the same time, freed from being a self-conscious model, while also revelling in its economic success and its pervasive diplomatic influence, China feels more capable of exercising its judgments autonomously, at home and abroad.
In late December it persuaded Cambodia to round up 20 Uighurs who had escaped there and had begun applying to the UN for refugee status, and to fly them back to very uncertain futures in China.
On December 29 it executed Briton Akmal Shaikh for drug trafficking without conducting any assessment of his mental health despite his family's strong contention that he was suffering from bipolar disorder.
These are manifest signs of its self-confidence. It no longer "trades" such prisoners. There is nothing much that Britain, for instance, can offer any more.
In 1840, when Britain wanted China's porcelain, silk and, above all, tea, emperor Daoguang declined to trade because it had nothing, he said, that China wanted. But Britain pressed on China the opium it had begun growing in India for that purpose. And China was too weak to resist. Today, the balance of power is reversed.
What has China achieved in the past decade? For its own population-- whose 20th century comprised a centuria horribilis with warlords, the Japanese invasion and Mao Zedong's purges -- it has enjoyed sensational economic growth.
In 2000, China's economic output was just 3.4 per cent of the world's. By 2008, it was 7.9 per cent and this year -- when it has pulled away from the West, which has been treading water or falling back -- it has further increased that share of the global economy, growing by 8.5 per cent. Its economic output has more than quadrupled during the decade, a target it originally set for 2020.
Reserve Bank governor Glenn Stevens and Treasury secretary Ken Henry keep pointing to China as a key contributor to Australia's easy passage through the financial crisis in 2008-09, which has been more a US-Europe downturn than a global recession.
China remains the most populous country in the world, with 1.33 billion people. But thanks to the one-child policy, its demographic growth has slowed, ensuring its increased income does not have to be shared more widely. At the start of the decade China comprised 21 per cent of the global population; now it is 19.9 per cent.
It receives more than 40 per cent of the foreign direct investment that goes to all developing countries. But its population is also about 30 per cent that of the entire developing world.
Its continued economic power is relentless, pulling like gravity until its share of the world's economy at least equals its share of the global population. In more palpable terms, as its people gain the freedom and wealth to travel, they are becoming aware of the gap they still have to bridge to catch up with the living standards of their neighbours in South Korea, Taiwan, Hong Kong and Japan.
The size of China's middle class remains modest, despite the excitement in the West about this great new market. Global Demographics starts from the number of people who respond to China's legal requirement to report to their local tax office once they earn more than $20,000 a year. This indicates that the households earning more than that sum are about 4.4 million: fewer than in Australia. But Global Demographics forecasts this will triple by 2014 and double again by 2019.
Already, because of the low cost of manufacturing -- enabling people of modest incomes, alongside vast numbers of state-owned enterprises replete with cash thanks to last year's monetary stimulus package, to buy cars -- China has this year overtaken the US as the biggest auto market in the world.
The past decade has seen China start to go global, armed with its newfound economic muscle. In 2000, it invested a mere $US1bn overseas. In 2008, it invested $US41bn directly in foreign businesses, and a further $US11 billion in international financial markets.
But this can be a tough task, even for a country with China's cash. Last year, it lost its long Australian battle for a bigger stake in Rio Tinto. Minxin Pei, a prominent China "discounter" -- he contests the word doomsayer -- said that Chinese bidder Chinalco "saw its cooked duck fly away".
Oded Shenkar, the Ford Motor Company chairman in global business management at Ohio State University wrote in his book The Chinese Century: "Economists and editorial writers often paint China's ascent as one more case of an emerging economy on its way up, preceded by Japan and the Asian Tigers, and soon to be joined by India.
"It is anything but. China's rise has more in common with the rise of the US a century earlier . . . We are witnessing the sustained and dramatic growth of a future world power, with an unmatched breadth of resources, lofty aspirations, strong bargaining position, and the financial and technological wherewithal of an established and business-savvy diaspora."
The pace of China's economic catch-up is likely to slow as further reforms become harder to achieve. This is due partly to the consensus-driven nature of the Chinese hierarchy, which to enhance stability has cut every conceivable faction in to the decision-making process, and to China's having already implemented the less controversial changes.
The influential book Capitalism with Chinese Characteristics by Yasheng Huang at MIT's Sloan School of Management, views the 1980s as a decade during which the rural-based private sector drove Chinese change and growth, before "the great reversal" of the 90s, during which the economy came to be dominated by capital-intensive, state-directed urban development.
But he is optimistic the present leadership -- President Hu Jintao and Premier Wen and possibly their expected successors Xi Jinping and Li Keqiang -- whose rhetoric has championed equality and opposed corruption, may restore a better balance.
Leading Chinese economist Yu Yongding, warned Australia's Productivity Commission in November: "China's investment-driven and export-led growth pattern is not sustainable." As the economy moves into investment overdrive, "China's overcapacity will become more serious."
Yu said the growth rate of China's exports cannot remain higher than that of the global economy. "With or without the global financial crisis, overcapacity will surface and correction is inevitable. The crisis exposed the vulnerability of China's growth pattern." But "China can spend its way out of the slowdown as long as the government wishes", because of its strong fiscal position. It famously keeps its foreign currency earnings offshore in order to hold the yuan down and thus retain as many export jobs as possible. Pei asks: "If China is so strong, why doesn't it show more leadership in addressing global problems?"
But all empires have their troubles; it comes with the territory. The US had its crosses to bear in the 20th century and China will be no different. What matters for Beijing is managing them as "eastward the water keeps on going".
China has decided to equip itself with the capacity to project itself not only with "soft power" but also with "hard power" to ensure it can counter its challenges.
During the past decade, China has modernised its military even as it has reduced the number of soldiers in the People's Liberation Army.
The US Council on Foreign Relations said in a report last year: "Since the 1990s, China has dramatically improved its military capabilities on land and sea, in the air, and in space."
Last week, Rear Admiral Yin Zhou said China should set up naval supply bases overseas. China's military is now regarded as second only in capacity to that of the US.
In its first, mostly failed stage, the new communist Chinese empire was ruled by emperor Mao. Now, it is run by committee. The anthem of the early days of this empire started: The east is red, the sun is rising. / China has brought forth a Mao Zedong.
He has been consigned to the history books. But the final verse remains more pertinent than ever: The Communist Party is like the sun. / Wherever it shines, it is bright.
We too, in Australia, feel that sun. Sometimes scorching, sometimes soothing but always there.
