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| Kathmandu, Saturday March 22, 2003 Chaitra 08, 2059. |
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China’s economy could
reap war dividend
By WILLIAM PESEK JR
As Asia counts the economic costs of war in
Iraq, there is at least one country that stands to benefit, and handsomely: China. The
world’s sixth-largest economy already has gotten a major boost from the dollar’s
slide.
War jitters are weakening the dollar, to which
the Chinese yuan is pegged. As the US currency falls and becomes more competitive, so does
Asia’s star economy.
War in Iraq could also help China in bigger ways
- some direct, some indirect. For one thing, war-related dynamics could drive even more
foreign direct investment its way. For another, China is gaining geopolitically,
solidifying its central role in the Asian economy. Beijing also has gotten Washington off
its back.
China has proven yet again that it can thrive
while much of the rest of the world slides. Its 8 percent growth amid stagnation in the
biggest economies is grabbing the attention of business executives around the globe. At
the same time, other economies - both developed and developing - are losing the faith of
CEOs, especially in a period of war. China is the winner here.
The march toward war has been accompanied by a
marked acceleration in investment in China. Foreign direct investment jumped nearly 54
percent in the first two months of 2003. Pledged foreign investment rose 59 percent during
the same period. Such figures are even more impressive than the record $52 billion of
foreign investment China attracted in 2002.
Currency stability is a big plus for China when
it comes to pulling in capital. Japan is being hit hard by the dollar’s fall, which
is strengthening the yen and reducing the economy’s competitiveness. China is
enjoying the flip side of the trend, giving the economy a cushion against slowing global
growth.
Beijing’s diplomatic gains are another
plus. Travelling around Asia these days, one finds little evidence that Washington has
convinced governments of the need to attack Iraq. By appearing to take the moral high
ground and insisting on continued diplomacy, China, Asia’s only permanent member of
the United Nations Security Council, is gaining stature. It is a stark contrast with
Japan, where economic challenges are being met with complete policy paralysis.
Everyone knew China’s rise would challenge
Japan’s role in Asia, but few thought the dynamic would unfold so rapidly. By going
its own way on Iraq, China is being viewed as a credible Asian leader. As Beijing wins
more and more plaudits for its foreign policy, it may win even more foreign investment.
But one of the biggest gains for China is
getting off Washington’s enemies list. From the moment the Bush administration came
to office in early 2001, it took a hard line on China. It was sympathetic to right-wing
arguments that China needed to be contained - that the United States should avoid giving
Beijing most-favored-nation trade status and challenge its bid to join the World Trade
Organization.
September 11 changed all that. The terrorist
attacks on New York and Washington directed the Bush team’s attention elsewhere. No
longer was Beijing a "strategic competitor" but a valued partner in the war on
terror. Washington has stopped criticizing China for human-rights abuses or censorship of
speech and the media. China’s campaign against the Internet goes largely ignored in
the United States.
"China is making sure that US attention
will stay focused on other countries even after Iraq may be finished," says Stephan
Richter, president of the online research firm TheGlobalist.com.
All this enables Beijing to perpetuate the hype
over its economy. Even as US. Treasury officials complain about Japan’s economic
woes, they ignore China’s own Japan-like challenges. China, too, is threatened by
hundreds of billions of dollars of bad loans in its largest state-run banks. Its economy,
like much of Japan’s, is driven by public spending.
Yet all one hears about China is that it is all
good. The place is run by geniuses, its prospects are boundless and executives who are not
rushing there are idiots. Lost in the hype are innumerable risks facing China, such as
potential social instability as it makes the transition to capitalism. There is nothing
self-sustaining about China’s boom.
A distracted Washington is not shining a
spotlight on Beijing’s risks. Nor is it objecting to how China, despite being a
member of the WTO, is selectively opening its economy. While the United States neither can
nor should stop China’s economic rise, Beijing is benefiting from its improved
relationship with the West.
China has not given President George W Bush its
full support on Iraq, but it may still enjoy some war-related perks. In return for
improved relations with the United States, energy-hungry China may get a good position to
jockey for access to oil fields in a post-Saddam Hussein Iraq.
Beijing’s bargaining chip could increase in
value when the North Korea crisis takes center stage. While China did not orchestrate it,
Pyongyang-related tensions between Seoul, Tokyo and Washington may strengthen
Beijing’s hand. It is plausible that China will use that to its benefit and seek
other economic concessions.
Officials in Asia’s second-biggest economy
may not be happy about war in Iraq, but it may suit their growth rate just fine.
International Herald Tribune
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