As the U.S. Pivots to Asia, China Sticks to Soft Power
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  • “First, the so-called ‘sphere of influence’ is an old phrase that does not fit the current times. China, which insists on a peaceful development road, has completely different diplomatic ideas from past hegemonies, and current small and medium countries also will not give their own destinies to the hands of big countries.”

    Wonderful if they’re telling the truth. And, of course, a Beijing leadership genuinely eager to embrace a South Korea- or Taiwan-style path of political evolution would be much more likely to BELIEVE and act upon statements like these, and not just make them.

  • I think the Politburo may be preoccupied with other issues at the moment — not only the unsolved problem of succession, but the slow down in the economy and all that implies.

    I hadn’t realized til yesterday how totally dependent the PRC was on foreign direct invesment. It generates roughly a third of GDP, 20 percent of revenues, and over half of exports. Plus local party bosses, at the municipal level, are dependent on it to meet growth targets, on which their careers depend: new foreign-owned factories generate the revenues that finance the real estate projects (apartment complexes especially) which show up as local GDP. Municipalities compete for this foreign direct investment much as states in this country compete for new Japanese automobile plants. They offer similar incentives: cheap land, tax holidays, whatever it takes.

    I learned all this by reading parts of Foreign Direct Investment and Urban Growth in China by Lei Wang, especially the introduction and the chapters on the growth of the urban real estate sector (iv) and competition for manufacturing (v).

    This book is invaluable. Too bad it costs over $50 used. Google preview and Amazon’s look inside are all I could get.

    We have so much to learn about China.

  • I think I erred about foreign direct investment generating one third of China’s GDP. What I should have said is that it represents one third of annual new fixed investment. Since the other two-thirds is largely composed of government infrastructure projects (freeways, high-speed rail, airports, etc) you can see how important foreign direct investment is to the growth of the Chinese economy (whose true rate, btw, is largely unknown: Chinese statistics don’t have error bars, and everybody lies like crazy when the subject is money.

  • Jacksonian Libertarian

    China’s export model economy which is built on manipulating their currency to give their exporters a price advantage, is failing. This makes dependence on economic soft power to counter US Military deployments in Asia, a weakening card to play.

    I think it’s likely that China will go into an economic depression similar to Japan’s now 2 decade old depression, and for the same reason. That reason being excessive holdings of foreign currency reserves which negate further currency manipulations and causes deflation in their own currency. This would make the playing of China’s economic soft power card laughable.

    China now holds a total of $3 Trillion in foreign currency reserves, $1.15 Trillion of which is US Treasuries. The stupid Chinese Communists thought they were cheating the clueless Capitalist Americans and getting all their money, but mercantilism doesn’t work with fiat money. All they really accomplished was to overpay for the foreign currency to begin with, and according to the “Law of Supply and Demand” as the foreign currency supply in their accounts increased it decreased in value costing them even more (if they now try to sell all the Treasuries they will flood the market and they will have to sell them at a deep discount to move them). And last they’ve trapped themselves in an export model economy, whose businesses have become dependent on the price advantage the currency manipulation gives them, take away the advantage and they’re no longer competitive. This means once they stop the manipulation their economy collapses, other countries will take much of their market share, and they are left with a deflationary depression, and lots of foreign currency of vastly reduced value to spend. The spending of which won’t boost their economy and will boost the foreign nations economies in the best way possible, with the return of capital, and a trade surplus boost to GDP.

  • Lei Wang’s Foreign Direct Investment and Urban Growth in China also shows how “hot money” from abroad fuels the Chinese real estate market: it is a highly speculative market in which prices are as out of touch with the average resident’s income to the same if not a greater extent than they were in L.A. before the sub-prime mortgage crisis.

    This is not going to end well.

  • Kenny

    “It will be a long time if ever before China can challenge the U.S. militarily,..”

    Bingo, Mr. Mead. You got it.

  • Does anybody know the difference between a 17% value added tax (VAT) on Chinese imports and a 17% tariff? I don’t.

    Unlike the VAT tax in Europe, which is used to finance social welfare programs, most of the revenues in China are spent on Party salaries and other expenses which don’t benefit ordinary people.

    again, hat tip to Lei Wang

  • Because there is no social insurance in China, workers save close to half their wages for a rainy day, which they deposit in state-owned (and Pary controlled) banks at artificially low interest rates. The banks lend that money (under Party orders) to state owned enterprises (SOE’s) to build freeways, apartment complexes, and other such projects that have small chance of ever paying it back.

    Someday, when workers start to withdraw their savings in large amounts, it won’t be there unless the government decides to print it. Either way the workers will be left high and dry: riots and inflation are most certainly in the cards.

    Talk about a Ponzi scheme.

  • Bob Larkin

    What is a “more respective hearing”?

  • Rick

    Is the ‘People’s Dail Online’ the rag of the Communist Party of Ireland?

  • walter grumpius

    “There’s no doubt that China sees its economic clout as a reliable form of soft power—and soft power works.”

    Economic clout is not “soft power” — just ask Krupp and GM and Mitsubishi back in 1942.

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