Yuan for the buck
China strengthened its economy and built up global credit over time. The changes were so steady that the US was lulled into believing that it was living in an unchanging world. But the world did change and Obama came to power in this altered world, writes Kaushik Basu.india Updated: Nov 20, 2009 22:35 IST
President Barack Obama’s just-concluded trip to China has caused much consternation among America’s conservative media. They view this as capitulation on the part of the US. Whereas, in 1998, Bill Clinton in a public discussion with Jiang Zemin talked about China’s poor human rights record, the Dalai Lama and the Tiananmen Square episode and, in 2002, George Bush also pressed China on similar issues, this visit of an American president was distinctly different. President Obama deferred indefinitely a meeting with the Dalai Lama in Washington to mollify the Chinese. In Beijing he assured his audience that, “we recognise that Tibet is part of the People’s Republic of China” and only then added that “the United States supports the early resumption of dialogue between the Chinese government and the representatives of the Dalai Lama.”
Nevertheless, this did not help very much. The US did not manage to bring up matters of human rights, nor the subject of China’s currency, the renminbi, being kept undervalued to promote China’s exports, though both these are major concerns of the US and other industrialised nations. Unlike the Russians, who, under pressure from the US, finally made an open statement that they were willing to impose sanctions against Iran to thwart its nuclear programme, Hu Jintao made no effort to toe the American line on Iran and, in fact, stressed how China held a different view on this matter of foreign policy. Finally, almost as if to drive the point home, the very day after Obama’s departure, China put Zhou Yongjun, a long-time US resident and leader of the Tiananmen Square protestors, on trial.
The simple fact of the matter is, as an article in the New York Times put it wistfully, “This is no longer the United States-China relationship of old but an encounter between a weakened giant and a comer with a bit of its own swagger.”
The conservative media and numerous right-wing bloggers in the US are upset at Obama’s bending over backwards to make peace with China. Their mistake is the failure to see that this has little to do with Obama. For years, in fact decades, the US has bought more goods from China than it has sold. This has led to a mounting American debt and explains China’s staggering foreign exchange reserve of over $2,000 billion. To get a sense of how large this is one simply needs to know that the second highest reserve-holder, Japan, has less than half this amount. If China off-loads a substantial amount of these dollar reserves, it can bring the dollar crashing down with devastating consequences for the American economy. Of course, such an action will hurt China since the value of its own reserves will fall but the hurt will be nowhere near what the US will have to contend with.
Seeing how China has taken a tough stand against the world’s largest and most powerful industrial nations on matters of not just its internal economic and political policies, but foreign policy and international politics too, and got away with it, some commentators in India have lamented the country’s weakness and argued that New Delhi should also take a similar tough stand.
This is, however, exactly the wrong lesson to take away. China has power not because it is asserting itself but it is able to assert itself because it has power. And its power and influence have little to do with how it conducts itself today but everything to do with the slow, almost imperceptible, accumulation of economic strength achieved over several decades.
What this reminds me of is a Jim Corbett story that I read years ago. It was such a long time ago that I am not quite sure how much of it is Corbett and how much my imagination. But whatever its origins, it illustrates the point well. Jim Corbett was out in the hills of Kumaon in search of a dangerous man-eater. I do not know if Robin was with him, but he certainly had his gun, cocked in the direction from where he had heard a sound, when he suddenly realised that the tiger was glaring at him from a different direction, and dangerously close. If he tried to quickly turn his gun, the cat would jump at him before he could pull the trigger. So Corbett froze, and then began turning his gun slowly, imperceptibly so. The tiger, thinking that nothing was happening, stayed still in its crouch. After an interminable 15 minutes Corbett’s muzzle was pointing straight at the tiger and its game was up.
China perfected the art of Corbett’s gun. It strengthened its economy and built up global credit with doggedness and over a long stretch of time. The process was on from the time of Nixon, through the Reagan years, Clinton and the Bushes. The changes were so steady that the US was lulled into believing that it was living in an unchanging world. But the world did change and Obama came to power in this altered world.
I am not sure that aiming for global power is the best of ambitions, but if that be the ambition, then the right lesson is not to simply act tough and talk tough but be prepared to work hard, steadily and relentlessly on the economy, or, in other words, to follow Corbett’s manoeuvre.
Kaushik Basu is Professor of Economics and Chairman, Department of Economics, Cornell University
The views expressed by the author are personal