The tamed dragon- Why trade is the centerpiece of the China puzzle ?

The word dragon has been synonymous with China, since time immemorial, largely owing to folklore of the dragon kingdom in ancient times. Napolean had once said

“Let China sleep, for when she wakes up, she will shake the world.”

It is without doubt that in the 21st century, Napolean’s words appear to have come true.

There are several key lessons to be learned from the China story. The critics can argue that fallacies in its model have already been exposed when its stock market lost one-third of its value in matter of weeks. I do not deny it, but China should be thankful that it came at a time when it still has opportune time to make amends. It must be remembered here that China is undergoing a transformation of its economy under the 12th five year plan with focus on creating a consumer driven economy.  This in turn has led to temporary slowdown in the economy, with growth rates hovering far below the double digit mark. At a recent meeting of the Communist party, the Chinese officials have reinstated their aim of doubling the economy size by 2020. Surely reducing interest rates and fuelling uninhibited spending on infrastructure cannot be the way out of it.

Over the last three decades, China has built up capacity not only for producing cheap goods but also becoming the largest consumer of raw materials like copper and iron ore. A slowdown in Chinese economy will predict a doom for the global commodity markets. In other words, China today is very much the driver of global economy much like the US of the 70s. Indian readers may disagree considering that we have the fastest growing economy in percentage terms, but let us not forget we are no where close  to it in absolute terms.

But where does China fit into the world economy ? I am not referring to it being the second largest economy with the world’s largest foreign reserves here. My onus here is how will the world react to China – the super power in the next decade? Will it replace US? Or will India with its soft power and look east policy overtake the dragon? China has always been known as a hard bully ready to flex its muscles when it comes to territorial disputes in the region over the South China sea or with its neighbor India.  Will China become an aggressor and use its military might?

China vs India comparison. Source: Quora

China vs India comparison. Source: Quora

The key to understanding China lies in a very simple logic – The art of business. Click To TweetFor China, the world is its market and as long as its business interests are safeguarded, it is unlikely to use military might in any manner. Take for instance, its relation with India. The two countries suffer from a huge trust deficit yet China has emerged as the largest trading partner for India ( despite India suffering from huge trade deficit, it can be seen as a ploy to keep China silent on the military front). Consider South Korea and Japan, American allies and challengers to China’s hegemony in South China sea (and Asia at large) , yet their trade continues to grow uninterrupted. Integrating with Taiwan is the reason behind allowing significant investments from Taiwan into the mainland China. In other words, China can be seen as the cunning business man, who might dislike his customer but is willing to do business as long as its profitable for it.

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This one sided trade in turn is building huge trade surplus for China which in turn forms the core behind setting up satellite states all across the globe. Pakistan and North Korea can be seen as primary examples of this experiment. The soft loans that China issues to African and Asian nations is largely on the pretext that the infrastructure contracts are awarded to the Chinese companies, thereby repatriating the funds back to its origin. Projects like “string of pearls” are a result of this strategy. As long as it does not make business sense to go on war, China will be the last one to enter into one.  It is very similar to well packed chewing gum, comes in great flavors but at the end of the day it remains sticky. China, too will stick to its territorial claims.

The other area of push from the Chinese is on signing multi lateral Free Trade Agreements (FTAs) most notably with ASEAN, Oceania and African countries so that China can import raw materials and flood their markets with finished goods with more competitive pricing. The ASEAN plus three ( China, South Korea and Japan) is a prime example of one such drive. Click To Tweet

The love- hate relation of China with its neighbors is unlikely to end sometime in future. The solution may lie in building strategic global alliances with countries that are opposed to regional bullying by China. India, Israel (purely from military perspective), Japan, South Korea and US can be one such strategic alliance. This in turn is the reason behind China’s concerns over India’s look east policy and growing engagements with Vietnam and Korea. In fact, protecting its business interests, China had also launched a “Made in China” to counter “Make in India” and promised tax breaks for industries upgrading their infrastructure and moving up the value chain over a period of 10 years. The average wage rate in India stands at about 92 cents per hour while it is over 3 USD in China according to a World Bank report. No wonder there exists a thrust towards this upgrade to higher value goods.

In short, China’s policy is a lot like Business brings money, which in turn makes investment and buys political power and then use this power to bring more business. In the event, this cycle is disturbed, a military conflict with China is inevitable.

What's your opinion ?

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  1. Profile gravatar of Nikita Sharma
    Nikita Sharma 2 years ago

    Nicely Written!

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The tamed dragon- Why trade is the centerpiece of the China puzzle ?

by Abhirup Bhattacharya time to read: 5 min
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