The Great Dragon Is Not Idle Anymore by Pedro F Marcelino

When, early in the month of January 2006, the Chinese Government announced the results of its trade reports for the previous year, not many people took it seriously. China’s lack of transparency now starts to upset western governments that can neither waive the country’s huge importing potential, nor live without many products – both raw and manufactured – that China supplies in huge amounts and low prices. In spite of that, many major commercial nations have begun low-profile talks with the People’s Republic, in an effort to curb an underlying anti-Chinese feeling in many of them.

China’s economic opening to the world did not occur massively until Hong Kong had been returned in 1997, and the two-year period between then and the date of Macao’s return (1999) had been used as a test. Chinese officials realised that the bet on “one country, two systems” had been the right one, at the right time. Reforms in selected parts of the mainland (mostly the Southeast) accelerated to full steam, and all the industrial sectors were propelled, aiming at international markets as a coveted goal. If China’s master plan goes ahead, Formosa Island will eventually join this effort as one of the crown jewels.

Although a big chunk of the world (namely Africa) had for long been receiving significant commercial and ideological support from China (as well as direct aid), it was not until the West felt that influence that the first reactions came. Shy, initially, but quite bolder in recent times. In mid-2004, the European Union, traditionally a protectionist economic group, stirred the waters with a blockade to the excessive textile products from China harbouring its coasts. For over a week, top level meetings took place. Eventually, Europe “saved face”, but China indeed won, stubbornly enforcing the position that ensured textiles were neither returned nor destroyed. For some reason, it seems to be one of the few nations that can almost always get away with permanently saying “no”.

Large areas of the country are now in full-fledged economic growth, and the Chinese were finally allowed to discover the positive aspects of capitalism (such as choice of produce). However, industrial efforts are nowadays more complex than in the times of the English Industrial Revolution. The dimensions of one and the other are not comparable, as Chinese industrialization implies massive consumption of fossil fuels and other raw materials that China does not own in big enough amounts. Anticipating energy crises in the middle of this century, Chinese officials invested ahead of their needs.

Discreetly, Chinese companies (both private and State-owned) started to probe resource-rich countries and regions, paying significant amounts to achieve strategic positions in energy and raw material companies throughout the world – such as gas or copper corporations. In locations where this capital is a major need, deals came cheap. But in countries with their own strategic views, the first signs of an anti-China reaction were observed. This was the case of Canada, when a major Chinese corporation tried to acquire a majoritary position in a big oil firm based in the Province of Alberta (the Canadian Texas). Many sectors of the Canadian business and political communities showed concerns that this would open a dangerous precedent, and that Canada would be selling itself cheap. Despite Chinese attempts for reassurance, looking at the enormous amounts of fuel consumption in current day China, it is quite likely that a major strategic operation is underway. An atmosphere of suspicion is set.

Simultaneously, Chinese emigrants have established and are establishing themselves evenly throughout the world, in the most unlikely places. They can today be found in the most out-of-the-way African city, as they can be found in the centre of any major European metropolis, although the type of activity differs greatly. In many parts of Africa, Chinese stores came (not always without conflict) to replace Lebanese, Indian and sometimes Ukrainian monopolies, and filled in an important gap: they provided impoverished communities with the possibility of buying cheap, short-lived goods for daily use. The same products do not enjoy an equally successful reception in Europe or North America, which already prompted a more sophisticated, market-specific response by Chinese industry leaders (e.g., 5000 € cars are soon to be made available to the European market). In any case, these emigrant communities create a privileged channel for imports straight from Chinese manufacturers, ignoring established commercial networks in host countries.

Hence, when the Government announced the 2005 results, it came as no surprise that China had a major joint surplus, even after deficits with energy-producing nations had been discounted. In fact, the mere announcement of the results drew attentions. The Chinese surplus rounds 101.9 billion US dollars… officially. Many economic observers, however, defend these numbers as unrealistic, when compared to the ensemble of reports from other nations. According to the American report, for instance, China’s surplus reaches 200 billion with the US alone. Adding the Japanese and European results, it swells up to 600. China is exporting massively, while its home market is reasonably self-sufficient, and the desire for foreign produce limited to specific items and strictly controlled. The country has been given warnings by all major players, including the IMF and the WTO, that it should put a brake on its own growth, to prevent more negative reactions from trade partners. In response, the Government slowed down investments in major infrastructures, but that does not seem to make the cut just yet.

Already in the US there are talks of a China-specific law that would impose a fat 27% tax on any Chinese imports. The bill, supported by trade hardliners such as Montana Democrat Senator Max Baucus and New York’s Senator Charles Schumer, could freeze trade relations overnight. George W. Bush, however, seems unwilling to play this heavy card so early in the game. China represents not only a major threat, but also a major opportunity. And it also represents a major player in the international scene, a force to be reckoned with (and that is increasingly proactive in showing it), and for the matter, one that will not easily be bullied.

Nonetheless, warnings that China should top up the value of the yuan (artificially kept in low levels, to foster exports) have found some reaction: the Chinese Government announced an appreciation… of 0.04 cents, i.e. close to nothing. Dollars keep flowing in, and American products staying out. Simultaneously, innuendos were created that China would soon be selling dollar reserves, and swapping them for euros, yens and gold, in an attempt to diversify the reserves, and become less dependent on the US.

Traditionally, nations such as US, France, Portugal or Germany stand on gold reserves as a secure investment (for all the above, gold reserves represent over 50% of national reserves). Other developed countries (such as Canada), chose currency instead, and limit gold ownership to less than 1%. China’s reserves consist of only 1.1% of gold. The announcement that the Chinese Central Bank could be buying big amounts of the valuable metal greatly appreciated its value in the international markets, pleasing gold-rich countries – Portugal, Switzerland, Italy and a few others. The Chinese diversification comes as a defense against bolder American protectionist laws, and it is not likely that the mentioned cash-strapped countries react against it, initially, when their governments struggle to keep budgets stable. But only time will tell if the United States are (once again) over-reacting, or if Europe is distracted.