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War on Currency?
- Thread starter theDoors
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http://books.google.com.sg/books?id...&resnum=1&ved=0CBQQ6AEwAA#v=onepage&q&f=false
This book details the workings of a secret group Japanese elite who put US interest ahead of Japan interest.
The Asian arm of the private organisation.
http://www.trilateral.org/
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The Curse of Government Failure
by Steve H. Hanke
http://www.cato.org/pub_display.php?pub_id=12158
Steve H. Hanke is a Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute in Washington, D.C.
Added to cato.org on September 21, 2010
This article appeared in the October 2010 issue of Globe Asia.
President Barack Obama has been marked by the curse of government failure. But you wouldn't know it by listening to the political and chattering classes in Washington, D.C. and other world capitals.
In a classic response, the great dissemblers have done what they do best: when trouble strikes, they dissemble. Indeed, following the Panic of 2008, they have been busy burying their mistakes by pointing fingers, covering up and re-writing history. Alas, their assertions are rarely subjected to what they regard as the indignity of factual verification. Never mind.
When it comes to pointing fingers at the alleged culprits of our current economic troubles, the Obama administration has reached back to the rhetoric of class warfare. Who is better to blame than the usual suspects: bankers, businessmen, speculators and, of course, the "rich"?
Steve H. Hanke is a Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute in Washington, D.C.
More by Steve H. Hanke
Foreigners are favorite targets, too. China has replaced Japan as the target of choice. From the early 1970s until 1995, Japan was the enemy. The mercantilists in Washington, D.C. claimed that unfair Japanese trading practices were behind the ballooning U.S. bilateral trade deficits with Japan and that those deficits were the source of many problems in the U.S. economy.
To correct the so-called problem, the U.S. demanded that Japan adopt an everappreciating yen policy. The Japanese complied and the yen appreciated against the greenback, from 360 in 1971 to 80 in 1995. But, this didn't close the U.S. trade deficit with Japan. Indeed, Japan's contribution to the U.S. trade deficit reached almost 60% in 1991. And, if that wasn't enough, the yen appreciation contributed to pushing Japan's economy into a deflationary quagmire.
Today, the U.S. is playing the same blame game with China. And why not? After all, China's contribution to the U.S. trade deficit has surged to almost 45%, reaching magnitudes registered by Japan in the early 1990s (see accompanying chart).
Let's hope China fails to follow Japan's lead and ignores U.S. demands for an ever-appreciating yuan. Such a wrongheaded Chinese compliance would do little more than attract massive hot money flows into China and create instability in China. This would be bad news for the world economy's main growth locomotive (see accompanying chart).
When it comes to finger pointing and re-writing history, officials from the Federal Reserve take the prize. For example, in early September, Chairman Ben Bernanke told the Financial Crisis Inquiry Commission that the Panic of 2008 was sparked by multiple mistakes in private firms and the lack of proper government regulations. According to the Chairman, the Fed bore no responsibility for the monetary roots of the credit mania that preceded the Panic of 2008.
The reality is quite different. It is punctuated by policy errors and government failures before and after the crisis. The great enabler was none other than the Fed. Without the central bank's "pedal to the metal" monetary policy — a policy designed to fight the alleged dangers of deflation — the classic Austrian boom-bust cycle we experienced could not have been realized.
Without the Fed pushing interest rates to artificially low levels, yield-chasing speculators, who employed carry trades and fantastic leverage, would have never seen the light of day. Yes, there were other government failures that contributed to various asset bubbles and associated instabilities in the real estate markets, for example. But, the primary enabler was the Fed and its ultra-accommodative monetary policy. Among other things, it was the Fed's monetary laxity that led to the fall of the dollar against the euro and the dramatic rise in commodity prices that climaxed in July 2008.
After the asset bubbles burst, the U.S. government has remained wrongfooted, introducing one policy error after another and generating a series of government failures. First, there has been too much government stimulus. As the accompanying table indicates, the Panic of 2008 was an invitation — as is the case with all crises — to expand the scope and scale of government. There is no doubt that the U.S. has witnessed a regime change in terms of the relative size of the federal government. The "Law of the Ratchet" is alive and well. Indeed, the crisis did ratchet up government expenditures, even according to the overly optimistic assumptions contained in the Office of Management and Budget's estimates.
The oft-repeated Keynesian rationale for the so-called stimulus spending — namely that it stimulates — should be thrown into the dust bin. When government spending is ratcheted up to new, unprecedented (since 1969) levels, citizen-taxpayers become very anxious, particularly if the spending is introduced when a country's fiscal position is weak.
Not surprisingly, the Obama administration's government spending binge is not working. It is actually subtracting from economic growth. As Prof. Harald Uhlig of the University of Chicago has shown in a paper published in the American Economic Review (May 2010), $3.40 of lost output is associated with every dollar of government spending. So, the much touted fiscal multiplier is negative, not positive. This is a case — like many others in the government sphere — in which doing nothing would have been superior to doing something.
Second, and related to the first, there has been too much government activism in response to the Panic of 2008. For example, according to research results contained in Prof. Laurence Kotlikoff's most recent book, Jimmy Stewart is Dead, there were over 115 government regulatory agencies for financial services before the crisis. Where were they as the Fed-induced credit mania built to a climax?
This past summer, a 2319-page Dodd-Frank financial reform bill was signed into law by President Obama. This law will add many new regulations and regulators. How many? No one knows because the complex rule-making process that accompanies the complex law has hardly begun. Talk about generating unnecessary uncertainty!
Third, the anti-market, anti-business rhetoric coming out of Washington, D.C. has been over the top. To get a handle on why the rhetoric is so sharp, there is no better place to start than to read the moderate Business Roundtable's 54-page compendium of the Obama administration's anti-business agenda. It's enough to cause any investor interested in fueling the recovery (and making a profit) to think twice.
These three post-crisis government errors, plus the Fed's role in fueling a classic Austrian cycle, have resulted in a great deal of regime uncertainty. People don't know what to expect next, particularly since President Obama has recently attempted to throw a "Hail Mary" pass by proposing yet another stimulus package.
The hallmarks of the Panic of 2008 are policy errors and government failure. These are encapsulated in the accompanying chart which displays the explosion of the Fed-controlled monetary base after the Panic of 2008 and the collapse of the money multiplier for the broadest measure of money, MZM. Even though the Fed has pumped up the monetary base, the credit channels are blocked. Banks are reluctant to loan and borrowers don't want to borrow. With such a credit deadlock, broad money growth is anemic, at best. Under these monetary conditions, we can expect a growth recession — one in which the economy grows, but grows below what has been its trend rate of growth.
While President Obama sings the glories of big government, it is ironic that he has been marked by the curse of government failure. One metric that measures how this curse will affect the president's performance is the Misery Index (see accompanying chart).
The Index is calculated by adding the difference between the average inflation rate over a president's term and the average inflation rate during the last year of the previous president's term; the difference between the average unemployment rate over a president's term and the unemployment rate during the last month of the previous president's term; the change in the 30-year government bond yield during a president's term; and the difference between the long-term, trend rate of real GDP growth (3.25%) and the real rate of growth during a president's term.
I have forecast what President Obama's most likely Misery Index score will be at the end of his current term. This miserable score is already baked in the cake and can be laid squarely at the feet of President Obama's own policy errors and government failure. For a president whose agenda is designed to overthrow the Reagan Revolution, the Misery Index should be a sobering reminder that free markets, not big government, generate prosperity.
by Steve H. Hanke
http://www.cato.org/pub_display.php?pub_id=12158
Steve H. Hanke is a Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute in Washington, D.C.
Added to cato.org on September 21, 2010
This article appeared in the October 2010 issue of Globe Asia.
President Barack Obama has been marked by the curse of government failure. But you wouldn't know it by listening to the political and chattering classes in Washington, D.C. and other world capitals.
In a classic response, the great dissemblers have done what they do best: when trouble strikes, they dissemble. Indeed, following the Panic of 2008, they have been busy burying their mistakes by pointing fingers, covering up and re-writing history. Alas, their assertions are rarely subjected to what they regard as the indignity of factual verification. Never mind.
When it comes to pointing fingers at the alleged culprits of our current economic troubles, the Obama administration has reached back to the rhetoric of class warfare. Who is better to blame than the usual suspects: bankers, businessmen, speculators and, of course, the "rich"?
Steve H. Hanke is a Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute in Washington, D.C.
More by Steve H. Hanke
Foreigners are favorite targets, too. China has replaced Japan as the target of choice. From the early 1970s until 1995, Japan was the enemy. The mercantilists in Washington, D.C. claimed that unfair Japanese trading practices were behind the ballooning U.S. bilateral trade deficits with Japan and that those deficits were the source of many problems in the U.S. economy.
To correct the so-called problem, the U.S. demanded that Japan adopt an everappreciating yen policy. The Japanese complied and the yen appreciated against the greenback, from 360 in 1971 to 80 in 1995. But, this didn't close the U.S. trade deficit with Japan. Indeed, Japan's contribution to the U.S. trade deficit reached almost 60% in 1991. And, if that wasn't enough, the yen appreciation contributed to pushing Japan's economy into a deflationary quagmire.
Today, the U.S. is playing the same blame game with China. And why not? After all, China's contribution to the U.S. trade deficit has surged to almost 45%, reaching magnitudes registered by Japan in the early 1990s (see accompanying chart).
Let's hope China fails to follow Japan's lead and ignores U.S. demands for an ever-appreciating yuan. Such a wrongheaded Chinese compliance would do little more than attract massive hot money flows into China and create instability in China. This would be bad news for the world economy's main growth locomotive (see accompanying chart).
When it comes to finger pointing and re-writing history, officials from the Federal Reserve take the prize. For example, in early September, Chairman Ben Bernanke told the Financial Crisis Inquiry Commission that the Panic of 2008 was sparked by multiple mistakes in private firms and the lack of proper government regulations. According to the Chairman, the Fed bore no responsibility for the monetary roots of the credit mania that preceded the Panic of 2008.
The reality is quite different. It is punctuated by policy errors and government failures before and after the crisis. The great enabler was none other than the Fed. Without the central bank's "pedal to the metal" monetary policy — a policy designed to fight the alleged dangers of deflation — the classic Austrian boom-bust cycle we experienced could not have been realized.
Without the Fed pushing interest rates to artificially low levels, yield-chasing speculators, who employed carry trades and fantastic leverage, would have never seen the light of day. Yes, there were other government failures that contributed to various asset bubbles and associated instabilities in the real estate markets, for example. But, the primary enabler was the Fed and its ultra-accommodative monetary policy. Among other things, it was the Fed's monetary laxity that led to the fall of the dollar against the euro and the dramatic rise in commodity prices that climaxed in July 2008.
After the asset bubbles burst, the U.S. government has remained wrongfooted, introducing one policy error after another and generating a series of government failures. First, there has been too much government stimulus. As the accompanying table indicates, the Panic of 2008 was an invitation — as is the case with all crises — to expand the scope and scale of government. There is no doubt that the U.S. has witnessed a regime change in terms of the relative size of the federal government. The "Law of the Ratchet" is alive and well. Indeed, the crisis did ratchet up government expenditures, even according to the overly optimistic assumptions contained in the Office of Management and Budget's estimates.
The oft-repeated Keynesian rationale for the so-called stimulus spending — namely that it stimulates — should be thrown into the dust bin. When government spending is ratcheted up to new, unprecedented (since 1969) levels, citizen-taxpayers become very anxious, particularly if the spending is introduced when a country's fiscal position is weak.
Not surprisingly, the Obama administration's government spending binge is not working. It is actually subtracting from economic growth. As Prof. Harald Uhlig of the University of Chicago has shown in a paper published in the American Economic Review (May 2010), $3.40 of lost output is associated with every dollar of government spending. So, the much touted fiscal multiplier is negative, not positive. This is a case — like many others in the government sphere — in which doing nothing would have been superior to doing something.
Second, and related to the first, there has been too much government activism in response to the Panic of 2008. For example, according to research results contained in Prof. Laurence Kotlikoff's most recent book, Jimmy Stewart is Dead, there were over 115 government regulatory agencies for financial services before the crisis. Where were they as the Fed-induced credit mania built to a climax?
This past summer, a 2319-page Dodd-Frank financial reform bill was signed into law by President Obama. This law will add many new regulations and regulators. How many? No one knows because the complex rule-making process that accompanies the complex law has hardly begun. Talk about generating unnecessary uncertainty!
Third, the anti-market, anti-business rhetoric coming out of Washington, D.C. has been over the top. To get a handle on why the rhetoric is so sharp, there is no better place to start than to read the moderate Business Roundtable's 54-page compendium of the Obama administration's anti-business agenda. It's enough to cause any investor interested in fueling the recovery (and making a profit) to think twice.
These three post-crisis government errors, plus the Fed's role in fueling a classic Austrian cycle, have resulted in a great deal of regime uncertainty. People don't know what to expect next, particularly since President Obama has recently attempted to throw a "Hail Mary" pass by proposing yet another stimulus package.
The hallmarks of the Panic of 2008 are policy errors and government failure. These are encapsulated in the accompanying chart which displays the explosion of the Fed-controlled monetary base after the Panic of 2008 and the collapse of the money multiplier for the broadest measure of money, MZM. Even though the Fed has pumped up the monetary base, the credit channels are blocked. Banks are reluctant to loan and borrowers don't want to borrow. With such a credit deadlock, broad money growth is anemic, at best. Under these monetary conditions, we can expect a growth recession — one in which the economy grows, but grows below what has been its trend rate of growth.
While President Obama sings the glories of big government, it is ironic that he has been marked by the curse of government failure. One metric that measures how this curse will affect the president's performance is the Misery Index (see accompanying chart).
The Index is calculated by adding the difference between the average inflation rate over a president's term and the average inflation rate during the last year of the previous president's term; the difference between the average unemployment rate over a president's term and the unemployment rate during the last month of the previous president's term; the change in the 30-year government bond yield during a president's term; and the difference between the long-term, trend rate of real GDP growth (3.25%) and the real rate of growth during a president's term.
I have forecast what President Obama's most likely Misery Index score will be at the end of his current term. This miserable score is already baked in the cake and can be laid squarely at the feet of President Obama's own policy errors and government failure. For a president whose agenda is designed to overthrow the Reagan Revolution, the Misery Index should be a sobering reminder that free markets, not big government, generate prosperity.
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http://books.google.com.sg/books?id...&resnum=1&ved=0CBQQ6AEwAA#v=onepage&q&f=false
This book details the workings of a secret group Japanese elite who put US interest ahead of Japan interest.
The Asian arm of the private organisation.
http://www.trilateral.org/
why is a whole book available on the net for free?
why??? but can i save you in a format where i can put on my ipad to read?
i would like that. thanks for the book.
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http://en.wikipedia.org/wiki/Cato_Institute
The Cato Institute is a libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Edward H. Crane, who remains president and CEO, and Charles Koch, chairman of the board and chief executive officer of the oil conglomerate Koch Industries, Inc., the second largest privately held company (after Cargill) by revenue in the United States.[1][2]
The Institute's stated mission is "to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets, and peace" by striving "to achieve greater involvement of the intelligent, lay public in questions of (public) policy and the proper role of government." Cato scholars conduct policy research on a broad range of public policy issues, and produce books, studies, op-eds, and blog posts. They are also frequent guests in the media.
The Cato Institute views itself as a non-partisan think tank whose views were not consistently aligned with either of the two major political parties in the U.S. Cato scholars were sometimes critical of George W. Bush's Republican administration (2001–2009) on a wide variety of issues, including the Iraq War, civil liberties, education, agriculture, energy policy, and excessive government spending. However, on other issues, most notably health care,[3] Social Security,[4][5] global warming,[6] tax policy,[7] and immigration,[8][9][10][11][12] Cato scholars had praised Bush administration initiatives. During the 2008 U.S. presidential election, Cato scholars criticized both major-party candidates, John McCain[13][14] and Barack Obama.[15][16]
The Cato Institute is named the fifth most influential think tank in the world in a study by the University of Pennsylvania in 2010.[17] The same research named Cato the world's "top think tank for innovative ideas" in 2009.[18]
The Institute was founded in San Francisco in 1977 by Edward H. Crane and initially funded by Charles G. Koch. Libertarian economist Murray Rothbard was a core member of Cato's founding group and coined the institute's name. Rothbard served on its board until leaving in 1981.[19]
The Institute is named after Cato's Letters, a series of British essays penned in the early 18th century by John Trenchard and Thomas Gordon expounding the political views of philosopher John Locke. The essays were named after Cato the Younger, the defender of republican institutions in Rome. Cato relocated to Washington, D.C. in 1981, settling first in a historic house on Capitol Hill.[20] The Institute moved to its current location on Massachusetts Avenue in 1993.
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The need to attack the Euro
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Is China's Politburo spoiling for a showdown with America?
The long-simmering clash between the world's two great powers is coming to a head, with dangerous implications for the international system.
http://www.telegraph.co.uk/finance/...uro-spoiling-for-a-showdown-with-America.html
By Ambrose Evans-Pritchard
Published: 5:33PM GMT 14 Mar 2010
China has succumbed to hubris. It has mistaken the soft diplomacy of Barack Obama for weakness, mistaken the US credit crisis for decline, and mistaken its own mercantilist bubble for ascendancy. There are echoes of Anglo-German spats before the First World War, when Wilhelmine Berlin so badly misjudged the strategic balance of power and over-played its hand.
Within a month the US Treasury must rule whether China is a "currency manipulator", triggering sanctions under US law. This has been finessed before, but we are in a new world now with America's U6 unemployment at 16.8pc.
"It's going to be really hard for them yet again to fudge on the obvious fact that China is manipulating. Without a credible threat, we're not going to get anywhere," said Paul Krugman, this year's Nobel economist.
China's premier Wen Jiabao is defiant.
"I don’t think the yuan is undervalued. We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency," he said yesterday. Once again he demanded that the US takes "concrete steps to reassure investors" over the safety of US assets.
"Some say China has got more arrogant and tough. Some put forward the theory of China's so-called 'triumphalism'. My conscience is untainted despite slanders from outside," he said
Days earlier the State Council accused America of serial villainy. "In the US, civil and political rights of citizens are severely restricted and violated by the government. Workers' rights are seriously violated," it said.
"The US, with its strong military power, has pursued hegemony in the world, trampling upon the sovereignty of other countries and trespassing their human rights," it said.
"At a time when the world is suffering a serious human rights disaster caused by the US subprime crisis-induced global financial crisis, the US government revels in accusing other countries." And so forth.
Is the Politiburo smoking weed?
I let others discuss the rights and wrongs of this, itself a response to the US report card on China. Clearly, Beijing is in denial about is own part in the global imbalances behind the credit crisis, specifically by running structural trade surpluses, and driving down long rates through dollar and euro bond purchases. No doubt the West has made a hash of things, but the Chinese view of events is twisted to the point of delusional.
What interests me is Beijing's willingness to up the ante. It has vowed sanctions against any US firm that takes part in a $6.4bn weapons contract for Taiwan, a threat to ban Boeing from China and a new level of escalation in the Taiwan dispute.
In Copenhagen, Wen Jiabao sent an underling to negotiate with Mr Obama in what was intended to be - and taken to be - a humiliation. The US President put his foot down, saying: "I don't want to mess around with this anymore." That sums up White House feelings towards China today.
We have talked ourselves into believing that China is already a hyper-power. It may become one: it is not one yet. China is ringed by states - Japan, Korea, Vietnam, India - that are American allies when push comes to shove. It faces a prickly Russia on its 4,000km border, where Chinese migrants are itching for Lebensraum across the Amur. Emerging Asia, Brazil, Egypt and Europe are all irked by China's yuan-rigged export dumping.
Michael Pettis from Beijing University argues that China's reserves of $2.4 trillion - arguably $3 trillion - are a sign of weakness, not strength. Only twice before in modern history has a country amassed such a stash equal to 5pc-6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression.
The reserves cannot be used internally to support China's economy. They are dead weight, beyond any level needed for macro-credibility. Indeed, they are the ultimate indictment of China's dysfunctional strategy, which is to buy $30bn to $40bn of foreign bonds every month to hold down the yuan, refusing to let the economy adjust to trade realities. The result is over-investment in plant, flooding the world with goods at wafer-thin export margins. China's over-capacity in steel is now greater than Europe's output.
This is catching up with China, in any case. Professor Victor Shuh from Northerwestern University warns that the 8,000 financing vehicles used by China's local governments to stretch credit limits have built up debts and commitments of $3.5 trillion, mostly linked to infrastructure. He says the banks may require a bail-out nearing half a trillion dollars.
As America's creditor - owner of some $1.4 trillion of US Treasuries, agency bonds, and US instruments - China can exert leverage. But this is not what it seems. If the Politburo deploys its illusiory power, Washington can pull the plug on China's export economy instantly by shutting markets. Who holds whom to ransom?
Any attempt to retaliate by triggering a US bond crisis would rebound against China, and could be stopped - in extremis - by capital controls. Roosevelt changed the rules in 1933. Such things happen. The China-US relationship is no doubt symbiotic, but a clash would not be "mutual assured destruction", as often claimed. Washington would win.
Contrary to myth, the slide to protectionism after the 1930 Smoot-Hawley Tariff Act did not cause the Depression. Trade contracted more slowly in the 1930s than this time. The Smoot-Hawley lesson is that tariffs have asymmetrical effects. They devastate surplus countries: then America. Deficit Britain did well by retreating into Imperial Preference.
Barack Obama has never exalted free trade. This orthodoxy is, in any case, under threat in the West. His top economic adviser Larry Summers let drop in Davos that free-trade arguments no longer hold when dealing with "mercantilist" powers. Adam Smith recognized this too, despite efforts by free-trade ultras to appropriate him for their cause.
China's trasformation has been remarkable since Deng Xiaoping unleashed capitalism, but as ex-diplomat George Walden writes in China: a Wolf in the World? you cannot feel at ease with a regime that still covers up Mao's murderous nihilism. He reminds us too that China has never forgiven the humilations inflicted by the West when the two civilizations collided in the 19th Century, and intends to exact revenge. Handle with care.
Is China's Politburo spoiling for a showdown with America?
The long-simmering clash between the world's two great powers is coming to a head, with dangerous implications for the international system.
http://www.telegraph.co.uk/finance/...uro-spoiling-for-a-showdown-with-America.html
By Ambrose Evans-Pritchard
Published: 5:33PM GMT 14 Mar 2010
China has succumbed to hubris. It has mistaken the soft diplomacy of Barack Obama for weakness, mistaken the US credit crisis for decline, and mistaken its own mercantilist bubble for ascendancy. There are echoes of Anglo-German spats before the First World War, when Wilhelmine Berlin so badly misjudged the strategic balance of power and over-played its hand.
Within a month the US Treasury must rule whether China is a "currency manipulator", triggering sanctions under US law. This has been finessed before, but we are in a new world now with America's U6 unemployment at 16.8pc.
"It's going to be really hard for them yet again to fudge on the obvious fact that China is manipulating. Without a credible threat, we're not going to get anywhere," said Paul Krugman, this year's Nobel economist.
China's premier Wen Jiabao is defiant.
"I don’t think the yuan is undervalued. We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency," he said yesterday. Once again he demanded that the US takes "concrete steps to reassure investors" over the safety of US assets.
"Some say China has got more arrogant and tough. Some put forward the theory of China's so-called 'triumphalism'. My conscience is untainted despite slanders from outside," he said
Days earlier the State Council accused America of serial villainy. "In the US, civil and political rights of citizens are severely restricted and violated by the government. Workers' rights are seriously violated," it said.
"The US, with its strong military power, has pursued hegemony in the world, trampling upon the sovereignty of other countries and trespassing their human rights," it said.
"At a time when the world is suffering a serious human rights disaster caused by the US subprime crisis-induced global financial crisis, the US government revels in accusing other countries." And so forth.
Is the Politiburo smoking weed?
I let others discuss the rights and wrongs of this, itself a response to the US report card on China. Clearly, Beijing is in denial about is own part in the global imbalances behind the credit crisis, specifically by running structural trade surpluses, and driving down long rates through dollar and euro bond purchases. No doubt the West has made a hash of things, but the Chinese view of events is twisted to the point of delusional.
What interests me is Beijing's willingness to up the ante. It has vowed sanctions against any US firm that takes part in a $6.4bn weapons contract for Taiwan, a threat to ban Boeing from China and a new level of escalation in the Taiwan dispute.
In Copenhagen, Wen Jiabao sent an underling to negotiate with Mr Obama in what was intended to be - and taken to be - a humiliation. The US President put his foot down, saying: "I don't want to mess around with this anymore." That sums up White House feelings towards China today.
We have talked ourselves into believing that China is already a hyper-power. It may become one: it is not one yet. China is ringed by states - Japan, Korea, Vietnam, India - that are American allies when push comes to shove. It faces a prickly Russia on its 4,000km border, where Chinese migrants are itching for Lebensraum across the Amur. Emerging Asia, Brazil, Egypt and Europe are all irked by China's yuan-rigged export dumping.
Michael Pettis from Beijing University argues that China's reserves of $2.4 trillion - arguably $3 trillion - are a sign of weakness, not strength. Only twice before in modern history has a country amassed such a stash equal to 5pc-6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression.
The reserves cannot be used internally to support China's economy. They are dead weight, beyond any level needed for macro-credibility. Indeed, they are the ultimate indictment of China's dysfunctional strategy, which is to buy $30bn to $40bn of foreign bonds every month to hold down the yuan, refusing to let the economy adjust to trade realities. The result is over-investment in plant, flooding the world with goods at wafer-thin export margins. China's over-capacity in steel is now greater than Europe's output.
This is catching up with China, in any case. Professor Victor Shuh from Northerwestern University warns that the 8,000 financing vehicles used by China's local governments to stretch credit limits have built up debts and commitments of $3.5 trillion, mostly linked to infrastructure. He says the banks may require a bail-out nearing half a trillion dollars.
As America's creditor - owner of some $1.4 trillion of US Treasuries, agency bonds, and US instruments - China can exert leverage. But this is not what it seems. If the Politburo deploys its illusiory power, Washington can pull the plug on China's export economy instantly by shutting markets. Who holds whom to ransom?
Any attempt to retaliate by triggering a US bond crisis would rebound against China, and could be stopped - in extremis - by capital controls. Roosevelt changed the rules in 1933. Such things happen. The China-US relationship is no doubt symbiotic, but a clash would not be "mutual assured destruction", as often claimed. Washington would win.
Contrary to myth, the slide to protectionism after the 1930 Smoot-Hawley Tariff Act did not cause the Depression. Trade contracted more slowly in the 1930s than this time. The Smoot-Hawley lesson is that tariffs have asymmetrical effects. They devastate surplus countries: then America. Deficit Britain did well by retreating into Imperial Preference.
Barack Obama has never exalted free trade. This orthodoxy is, in any case, under threat in the West. His top economic adviser Larry Summers let drop in Davos that free-trade arguments no longer hold when dealing with "mercantilist" powers. Adam Smith recognized this too, despite efforts by free-trade ultras to appropriate him for their cause.
China's trasformation has been remarkable since Deng Xiaoping unleashed capitalism, but as ex-diplomat George Walden writes in China: a Wolf in the World? you cannot feel at ease with a regime that still covers up Mao's murderous nihilism. He reminds us too that China has never forgiven the humilations inflicted by the West when the two civilizations collided in the 19th Century, and intends to exact revenge. Handle with care.
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Chinese Perceptions of U.S. Decline and Power
Publication: China Brief Volume: 9 Issue: 14
July 9, 2009 03:13 PM Age: 1 yrs
Category: China Brief, Foreign Policy, China and the Asia-Pacific, Home Page, Featured
By: Bonnie S. Glaser, Lyle Morris
http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews[tt_news]=35241&cHash=db9748f805
For the past few years, the Western world has been abuzz with talk of China’s rise. Most statesmen, pundits and academics have concluded that China’s rise is inevitable, but as of yet there has been no consensus on the implications of China’s rise for the rest of the world. While Westerners debate issues like whether and how China can be “molded” into becoming a responsible stakeholder in the international system, the Chinese have been quietly conducting a debate of their own. After more than a decade of judging the international structure of power as characterized by “yi chao, duo qiang” (one superpower, many great powers) [1]—with a substantial gap between the United States and other major powers—Chinese scholars are debating whether U.S. power is now in decline and if multipolarity (duojihua) is becoming a reality. A key precipitating factor is the global financial crisis, which has sown doubts in the minds of some Chinese experts about the staying power of U.S. hegemony in the international system.
Chinese perceptions of American power are consequential. China’s assessment of the global structure of power is an important factor in Chinese foreign policy decision-making. As long as Chinese leaders perceive a long-lasting American preeminence, averting confrontation with the United States is likely seen as the best option. If Beijing were to perceive the U.S. position as weakening, there could be fewer inhibitions for China to avoid challenging the United States where American and Chinese interests diverge. Since the late-1990s, Beijing has judged the United States as firmly entrenched in the role of sole superpower. As long as the comprehensive national power of China and the other major powers lagged far behind the United States, and the ability of China to forge coalitions to counterbalance U.S. power remained limited, Beijing concertedly avoided challenging U.S. interests around the world; for example, when the United States invaded Iraq. Yet, China’s recent evaluation that the United States is overextended with wars in Iraq and Afghanistan, coupled with a perceived U.S. weakness in the wake of the financial crisis, could imbue Chinese policy makers with the confidence to be more assertive on the international stage in ways that may be inconsistent with American interests.
The debate in China over a possible U.S. decline is not new, however. After the end of the Cold War, Chinese experts embarked on a rigorous examination of the new global environment that would emerge after the collapse of the Soviet Union and communism in Eastern Europe. At that time other rapidly expanding economies, especially Japan and Germany, were perceived as having become powerful U.S. competitors in high technology. Some Chinese experts began to predict the emergence of a post-Cold War multipolar world order, a greater balance among major powers, resistance toward “Western values” and an increased emphasis worldwide on economic and diplomatic approaches as opposed to military might [2]. These predictions proved overly optimistic, however, and Beijing subsequently concluded that the United States would maintain its status as “sole superpower” for the next 15 to 20 years, if not longer [3].
Recent events, notably U.S. involvement in Iraq and Afghanistan and the financial crisis, juxtaposed against China’s sustained economic growth, have rekindled the debate in China about the sustainability of a U.S.-dominated international structure and China’s role in that new structure of power. In particular, many Chinese experts are viewing the recent U.S.-led financial crisis as sounding the death knell for unfettered American economic and hard power predominance and the dawn of a more inclusive multipolar system in which the United States can no longer unilaterally dictate world events.
Signs that the debate has been rejuvenated surfaced in 2006 with a provocative newspaper article by Wang Yiwei, a young scholar at Shanghai’s Fudan University, who posed the question, “How can we prevent the USA from declining too quickly?”. The article, which suggested that a precipitous decline in U.S. power would harm Chinese investments, predicted the United States would soon fall to the status of a regional power rather than a global power because of its arrogance and imperial overreach and advised Washington to “learn to accept Chinese power on the world stage.” Wang’s article generated a tremendous response from readers and intellectuals, which spurred further debate within China about whether U.S. power was in decline [4].
After the onset of the financial crisis in the United States in 2008, which quickly reverberated globally, more articles appeared in Chinese newspapers positing a radical shift in the global structure of power. In a May 18, 2009 article in China’s official state-run newspaper China Daily, Fu Mengzi, assistant president of the China Institutes of Contemporary International Relations, maintained that “the global financial crisis offers global leaders a chance to change the decades-old world political and economic orders. But a new order cannot be established until an effective multilateral mechanism to monitor globalization and countries' actions comes into place. And such a mechanism can work successfully only if the old order gets a formal burial after extensive and effective consultations and cooperation among world leaders” [5].
Li Hongmei, editor and columnist for People's Daily online, the official mouthpiece of the Chinese Communist Party, framed the argument more assertively in a February 2009 article by predicting an “unambiguous end to the U.S. unipolar system after the global financial crisis,” saying that in 2008, U.S. hegemony was “pushed to the brink of collapse as a result of its inherent structural contradictions and unbridled capitalist structure.” Li forecast that “in 2009, as a result of this decline, the international order will be reshuffled toward multipolarity with an emphasis on developing economies like China, Russia and Brazil” [6].
Li Hongmei and others highlight what they see as the main source of U.S. power decline: economics; and especially share of global Gross Domestic Product (GDP). The IMF’s recently published figures on global GDP points out that in 2003, GDP in the United States accounted for 32 percent of the world total, while the total GDP of emerging economies accounted for 25 percent. In 2008 however, the figures were reversed, with the total GDP of emerging economies at 32 percent and U.S. GDP at 25 percent of the world total respectively [7]. From Li’s perspective, the recent financial crisis portends a continuation of the downward trend for the United States.
Scholars such as Wu Xinbo, professor and associate dean of the School of International Relations and Public Affairs at Fudan University, and Zhang Liping, senior fellow and deputy director of Political Studies Section at the Institute of American Studies in the Chinese Academy of Social Sciences (CASS), highlight a major shift in U.S. soft power and legitimacy after the U.S. invasion of Iraq. According to Wu, the United States “lost its ‘lofty sentiments’ after it invaded Iraq and is feeling more ‘frustrated and lonely’ which will lead it to seek more cooperation with other big powers” [8]. Similarly, Zhang points to a diminution in U.S. soft power, a decrease in its ability to influence its allies, and diminished ability to get countries ‘on board’ with U.S. foreign policy initiatives after the invasion of Iraq—all signs that augur a decline in America’s legitimacy abroad [9].
Not all Chinese experts are in agreement, however, and some warn explicitly against drawing a premature conclusion that U.S. power is on the decline. Notable among these voices is Wang Jisi, dean of Beijing University’s School of International Studies, who harshly criticizes Chinese analysts who view U.S. power as being in decline. Wang argues, for example, that “there really is no reliable basis for saying at this point that the United States has experienced a setback from which it cannot recover.” While acknowledging that the invasion of Iraq damaged U.S. soft power and legitimacy abroad, Wang maintains that he does not see any fundamental change to the global balance of power. “To date,” Wang says, “no country has been able to constitute a comprehensive challenge to the United States, and the current international power structure of ‘one superpower and many great powers’ will continue for the foreseeable future.” Wang also advises China’s leaders to “avoid becoming embroiled in the central maelstrom of world politics and concentrate on managing its own affairs first” [10].
Xu Jin, researcher at the Chinese Academy of Social Sciences’ Institute of World Economics and Politics, and Zhu Feng, director of the International Security Program in the School of International Studies at Peking University, insist that the financial crisis “will not bring substantive changes to the international pattern of ‘one superpower and many great powers.’” Xu anticipates that the financial disparity between the United States and other powers will narrow as a result of the financial crisis, possibly leading to a decline in U.S. economic hegemony. Yet, he concludes that any harm the financial crisis inflicts on the United States will have limited damage on its overall global position, since economic prowess is only one of the “many elements of U.S. comprehensive power” [11]. Zhu adds that “even if America takes a hit with the financial crisis, the large gap between America and world in economic terms is so large, and other markets are so firmly enmeshed with the U.S., that no fundamental shift will occur to America’s relative position in the world” [12].
Echoing this view is Liu Jianfei, professor and associate director of the International Strategy Institute at the Communist Party Central School. In a recent issue of Sousuo yu Zhengming, a periodical published by the Shanghai Social Science Association, Liu presents a comprehensive analysis of the post-financial crisis world and cautions China against coming to premature conclusions about a rapid decline in U.S. overall power. “The financial crisis will undoubtedly weaken U.S. hard power, but it might end up affecting the economies of other countries even more,” says Liu. “The overall negative influence affecting the power of American hegemony—in military, economic and soft power terms—will remain limited” [13].
Liu Jianfei sees U.S. influence as indispensable in shaping a new world order and cautions China about taking “too high a profile,” or “seeking to be a leader” of the international system. “China still needs more time to develop and open up to the outside world,” he says. “Many are calling for China to be the new leader in the new world order, but we need to continue down the road of reform and development and not adopt hegemonic tendencies. China also needs the cooperation and trade of the United States and other Western countries in order to succeed” [14].
What emerges is a lively debate in China about whether the international system is undergoing a fundamental shift that heralds the decline of U.S. power. As evidenced by the wide range of opinions, experts are far from reaching agreement on the core question of whether the United States is in decline. The vast majority maintains that the prevailing international structure of power will not last; it eventually will give way to a multipolar era in which China and other emerging economies have an increasing say about issues of global importance. At the same time, many experts also caution that the transition to multipolarity will be a prolonged process, and that for the foreseeable future the United States will maintain its position at the helm of the international structure of power. Only a minority of experts view the United States as already in decline and the world on the cusp of becoming truly multipolar.
Conspicuously absent from the debate is discussion of how a multipolar system would operate and what role China would play in the new world order. Would a more equal power distribution among major powers result in greater competition or cooperation, in balancing or bandwagoning, for example? If future international developments persuade Chinese leaders that the United States is in decline and that a multipolar world has arrived, Chinese experts will need to more closely examine such questions.
An emerging multipolar world could prompt Beijing to adopt a more assertive foreign policy and military posture, but could also provide incentives for China to be cooperative. Tensions over territorial claims with the Philippines, Vietnam, and Japan continue to simmer, and a perceived power vacuum in the area could embolden China to assert greater influence over these disputed islands. Furthermore, the potential for China to adopt coercive policies against Taiwan is an ever-present danger looming over U.S.-China relations. Yet, Beijing might instead see its interests best served by working cooperatively with the other major powers to ensure a soft landing as the world transitions from “one superpower, many major powers” to a new multipolar pattern. Significant disincentives will exist to a revisionist shift in China’s foreign and defense policies. Assertiveness or aggression by China would likely cause the other major powers to band together to counter the emergent Chinese threat. Unless China perceives a threat to its vital interests (such as a declaration of independence by Taiwan), Beijing may see strong incentives to act cautiously. The time may then come for China to discard Deng Xiaoping’s dictum to “keep a low profile,” and become the “responsible stakeholder” that the world hopes for rather than the next global hegemon.
Notes
1.The first mention of “yi chao duo qiang” that the authors were able to find was by Liao Yonghe, “The Right and Wrong of the ‘America in Decline’ Theory,” Dangdai Shijie, 1995 Vol. 3. See also Michael Pillsbury’s China Debates the Future Security Environment, National Defense University Press, January 2000.
2.Pillsbury, Michael, “China’s Perceptions of the USA: The View from Open Sources,” Testimony prepared for U.S.-China Security and Economic Review Commission, Oct. 19, 2001.
3.For more on this reassessment, see Finkelstein, David M, China Reconsiders Its National Security: The Great Peace and Development Debate of 1999, Project Asia - CNA Corporation, Dec. 2000.
4.Wang Yiwei, “How can we prevent the USA from declining too quickly?” Global Times Online, Aug. 12, 2006.
5.Fu Mengzi, “Old Order Should Yield Place to New,” Peoples Daily Online, May 18th, 2009.
6.Li Hongmei, “U.S. Hegemony Ends, Era of Global Multipolarity Begins,” Peoples Daily Online, Feb. 24, 2009, Open Source Center (OSC), CPP20090224701001.
7.Ibid.
8.Wu Xinbo, “China Rise Startles U.S. into Sobriety,” Global Times, Dec. 23, 2007*.
9.Zhang Liping, “Is America in Decline after 9/11?” Shijie Zhishi, July 2007, Vol. 21*.
10.Wang Jisi, “Roundtable on U.S.-China Relations,” Nanfeng Chuang, Oct. 20, 2008.
11.Xu Jin, “The Financial Crisis Will Not Upset the ‘One Superpower and Many Powers’ Structure,” Shijie Jingji yu Zhengzhi; Dec. 14, 2008, OSC, CPP20090223671003.
12.Zhu Feng, “The Obama Administration Foreign Policy: Afterthoughts on our Fieldwork in America,” International and Strategic Studies Report, Center for International and Strategic Studies, Peking University, March 20, 2009.*
13.Liu Jianfei, “Chinese Foreign Strategy in Wake of the Financial Crisis,” Sousuo yu Zhengming; May 2009, Vol. 3*.
14.Ibid.
Publication: China Brief Volume: 9 Issue: 14
July 9, 2009 03:13 PM Age: 1 yrs
Category: China Brief, Foreign Policy, China and the Asia-Pacific, Home Page, Featured
By: Bonnie S. Glaser, Lyle Morris
http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews[tt_news]=35241&cHash=db9748f805
For the past few years, the Western world has been abuzz with talk of China’s rise. Most statesmen, pundits and academics have concluded that China’s rise is inevitable, but as of yet there has been no consensus on the implications of China’s rise for the rest of the world. While Westerners debate issues like whether and how China can be “molded” into becoming a responsible stakeholder in the international system, the Chinese have been quietly conducting a debate of their own. After more than a decade of judging the international structure of power as characterized by “yi chao, duo qiang” (one superpower, many great powers) [1]—with a substantial gap between the United States and other major powers—Chinese scholars are debating whether U.S. power is now in decline and if multipolarity (duojihua) is becoming a reality. A key precipitating factor is the global financial crisis, which has sown doubts in the minds of some Chinese experts about the staying power of U.S. hegemony in the international system.
Chinese perceptions of American power are consequential. China’s assessment of the global structure of power is an important factor in Chinese foreign policy decision-making. As long as Chinese leaders perceive a long-lasting American preeminence, averting confrontation with the United States is likely seen as the best option. If Beijing were to perceive the U.S. position as weakening, there could be fewer inhibitions for China to avoid challenging the United States where American and Chinese interests diverge. Since the late-1990s, Beijing has judged the United States as firmly entrenched in the role of sole superpower. As long as the comprehensive national power of China and the other major powers lagged far behind the United States, and the ability of China to forge coalitions to counterbalance U.S. power remained limited, Beijing concertedly avoided challenging U.S. interests around the world; for example, when the United States invaded Iraq. Yet, China’s recent evaluation that the United States is overextended with wars in Iraq and Afghanistan, coupled with a perceived U.S. weakness in the wake of the financial crisis, could imbue Chinese policy makers with the confidence to be more assertive on the international stage in ways that may be inconsistent with American interests.
The debate in China over a possible U.S. decline is not new, however. After the end of the Cold War, Chinese experts embarked on a rigorous examination of the new global environment that would emerge after the collapse of the Soviet Union and communism in Eastern Europe. At that time other rapidly expanding economies, especially Japan and Germany, were perceived as having become powerful U.S. competitors in high technology. Some Chinese experts began to predict the emergence of a post-Cold War multipolar world order, a greater balance among major powers, resistance toward “Western values” and an increased emphasis worldwide on economic and diplomatic approaches as opposed to military might [2]. These predictions proved overly optimistic, however, and Beijing subsequently concluded that the United States would maintain its status as “sole superpower” for the next 15 to 20 years, if not longer [3].
Recent events, notably U.S. involvement in Iraq and Afghanistan and the financial crisis, juxtaposed against China’s sustained economic growth, have rekindled the debate in China about the sustainability of a U.S.-dominated international structure and China’s role in that new structure of power. In particular, many Chinese experts are viewing the recent U.S.-led financial crisis as sounding the death knell for unfettered American economic and hard power predominance and the dawn of a more inclusive multipolar system in which the United States can no longer unilaterally dictate world events.
Signs that the debate has been rejuvenated surfaced in 2006 with a provocative newspaper article by Wang Yiwei, a young scholar at Shanghai’s Fudan University, who posed the question, “How can we prevent the USA from declining too quickly?”. The article, which suggested that a precipitous decline in U.S. power would harm Chinese investments, predicted the United States would soon fall to the status of a regional power rather than a global power because of its arrogance and imperial overreach and advised Washington to “learn to accept Chinese power on the world stage.” Wang’s article generated a tremendous response from readers and intellectuals, which spurred further debate within China about whether U.S. power was in decline [4].
After the onset of the financial crisis in the United States in 2008, which quickly reverberated globally, more articles appeared in Chinese newspapers positing a radical shift in the global structure of power. In a May 18, 2009 article in China’s official state-run newspaper China Daily, Fu Mengzi, assistant president of the China Institutes of Contemporary International Relations, maintained that “the global financial crisis offers global leaders a chance to change the decades-old world political and economic orders. But a new order cannot be established until an effective multilateral mechanism to monitor globalization and countries' actions comes into place. And such a mechanism can work successfully only if the old order gets a formal burial after extensive and effective consultations and cooperation among world leaders” [5].
Li Hongmei, editor and columnist for People's Daily online, the official mouthpiece of the Chinese Communist Party, framed the argument more assertively in a February 2009 article by predicting an “unambiguous end to the U.S. unipolar system after the global financial crisis,” saying that in 2008, U.S. hegemony was “pushed to the brink of collapse as a result of its inherent structural contradictions and unbridled capitalist structure.” Li forecast that “in 2009, as a result of this decline, the international order will be reshuffled toward multipolarity with an emphasis on developing economies like China, Russia and Brazil” [6].
Li Hongmei and others highlight what they see as the main source of U.S. power decline: economics; and especially share of global Gross Domestic Product (GDP). The IMF’s recently published figures on global GDP points out that in 2003, GDP in the United States accounted for 32 percent of the world total, while the total GDP of emerging economies accounted for 25 percent. In 2008 however, the figures were reversed, with the total GDP of emerging economies at 32 percent and U.S. GDP at 25 percent of the world total respectively [7]. From Li’s perspective, the recent financial crisis portends a continuation of the downward trend for the United States.
Scholars such as Wu Xinbo, professor and associate dean of the School of International Relations and Public Affairs at Fudan University, and Zhang Liping, senior fellow and deputy director of Political Studies Section at the Institute of American Studies in the Chinese Academy of Social Sciences (CASS), highlight a major shift in U.S. soft power and legitimacy after the U.S. invasion of Iraq. According to Wu, the United States “lost its ‘lofty sentiments’ after it invaded Iraq and is feeling more ‘frustrated and lonely’ which will lead it to seek more cooperation with other big powers” [8]. Similarly, Zhang points to a diminution in U.S. soft power, a decrease in its ability to influence its allies, and diminished ability to get countries ‘on board’ with U.S. foreign policy initiatives after the invasion of Iraq—all signs that augur a decline in America’s legitimacy abroad [9].
Not all Chinese experts are in agreement, however, and some warn explicitly against drawing a premature conclusion that U.S. power is on the decline. Notable among these voices is Wang Jisi, dean of Beijing University’s School of International Studies, who harshly criticizes Chinese analysts who view U.S. power as being in decline. Wang argues, for example, that “there really is no reliable basis for saying at this point that the United States has experienced a setback from which it cannot recover.” While acknowledging that the invasion of Iraq damaged U.S. soft power and legitimacy abroad, Wang maintains that he does not see any fundamental change to the global balance of power. “To date,” Wang says, “no country has been able to constitute a comprehensive challenge to the United States, and the current international power structure of ‘one superpower and many great powers’ will continue for the foreseeable future.” Wang also advises China’s leaders to “avoid becoming embroiled in the central maelstrom of world politics and concentrate on managing its own affairs first” [10].
Xu Jin, researcher at the Chinese Academy of Social Sciences’ Institute of World Economics and Politics, and Zhu Feng, director of the International Security Program in the School of International Studies at Peking University, insist that the financial crisis “will not bring substantive changes to the international pattern of ‘one superpower and many great powers.’” Xu anticipates that the financial disparity between the United States and other powers will narrow as a result of the financial crisis, possibly leading to a decline in U.S. economic hegemony. Yet, he concludes that any harm the financial crisis inflicts on the United States will have limited damage on its overall global position, since economic prowess is only one of the “many elements of U.S. comprehensive power” [11]. Zhu adds that “even if America takes a hit with the financial crisis, the large gap between America and world in economic terms is so large, and other markets are so firmly enmeshed with the U.S., that no fundamental shift will occur to America’s relative position in the world” [12].
Echoing this view is Liu Jianfei, professor and associate director of the International Strategy Institute at the Communist Party Central School. In a recent issue of Sousuo yu Zhengming, a periodical published by the Shanghai Social Science Association, Liu presents a comprehensive analysis of the post-financial crisis world and cautions China against coming to premature conclusions about a rapid decline in U.S. overall power. “The financial crisis will undoubtedly weaken U.S. hard power, but it might end up affecting the economies of other countries even more,” says Liu. “The overall negative influence affecting the power of American hegemony—in military, economic and soft power terms—will remain limited” [13].
Liu Jianfei sees U.S. influence as indispensable in shaping a new world order and cautions China about taking “too high a profile,” or “seeking to be a leader” of the international system. “China still needs more time to develop and open up to the outside world,” he says. “Many are calling for China to be the new leader in the new world order, but we need to continue down the road of reform and development and not adopt hegemonic tendencies. China also needs the cooperation and trade of the United States and other Western countries in order to succeed” [14].
What emerges is a lively debate in China about whether the international system is undergoing a fundamental shift that heralds the decline of U.S. power. As evidenced by the wide range of opinions, experts are far from reaching agreement on the core question of whether the United States is in decline. The vast majority maintains that the prevailing international structure of power will not last; it eventually will give way to a multipolar era in which China and other emerging economies have an increasing say about issues of global importance. At the same time, many experts also caution that the transition to multipolarity will be a prolonged process, and that for the foreseeable future the United States will maintain its position at the helm of the international structure of power. Only a minority of experts view the United States as already in decline and the world on the cusp of becoming truly multipolar.
Conspicuously absent from the debate is discussion of how a multipolar system would operate and what role China would play in the new world order. Would a more equal power distribution among major powers result in greater competition or cooperation, in balancing or bandwagoning, for example? If future international developments persuade Chinese leaders that the United States is in decline and that a multipolar world has arrived, Chinese experts will need to more closely examine such questions.
An emerging multipolar world could prompt Beijing to adopt a more assertive foreign policy and military posture, but could also provide incentives for China to be cooperative. Tensions over territorial claims with the Philippines, Vietnam, and Japan continue to simmer, and a perceived power vacuum in the area could embolden China to assert greater influence over these disputed islands. Furthermore, the potential for China to adopt coercive policies against Taiwan is an ever-present danger looming over U.S.-China relations. Yet, Beijing might instead see its interests best served by working cooperatively with the other major powers to ensure a soft landing as the world transitions from “one superpower, many major powers” to a new multipolar pattern. Significant disincentives will exist to a revisionist shift in China’s foreign and defense policies. Assertiveness or aggression by China would likely cause the other major powers to band together to counter the emergent Chinese threat. Unless China perceives a threat to its vital interests (such as a declaration of independence by Taiwan), Beijing may see strong incentives to act cautiously. The time may then come for China to discard Deng Xiaoping’s dictum to “keep a low profile,” and become the “responsible stakeholder” that the world hopes for rather than the next global hegemon.
Notes
1.The first mention of “yi chao duo qiang” that the authors were able to find was by Liao Yonghe, “The Right and Wrong of the ‘America in Decline’ Theory,” Dangdai Shijie, 1995 Vol. 3. See also Michael Pillsbury’s China Debates the Future Security Environment, National Defense University Press, January 2000.
2.Pillsbury, Michael, “China’s Perceptions of the USA: The View from Open Sources,” Testimony prepared for U.S.-China Security and Economic Review Commission, Oct. 19, 2001.
3.For more on this reassessment, see Finkelstein, David M, China Reconsiders Its National Security: The Great Peace and Development Debate of 1999, Project Asia - CNA Corporation, Dec. 2000.
4.Wang Yiwei, “How can we prevent the USA from declining too quickly?” Global Times Online, Aug. 12, 2006.
5.Fu Mengzi, “Old Order Should Yield Place to New,” Peoples Daily Online, May 18th, 2009.
6.Li Hongmei, “U.S. Hegemony Ends, Era of Global Multipolarity Begins,” Peoples Daily Online, Feb. 24, 2009, Open Source Center (OSC), CPP20090224701001.
7.Ibid.
8.Wu Xinbo, “China Rise Startles U.S. into Sobriety,” Global Times, Dec. 23, 2007*.
9.Zhang Liping, “Is America in Decline after 9/11?” Shijie Zhishi, July 2007, Vol. 21*.
10.Wang Jisi, “Roundtable on U.S.-China Relations,” Nanfeng Chuang, Oct. 20, 2008.
11.Xu Jin, “The Financial Crisis Will Not Upset the ‘One Superpower and Many Powers’ Structure,” Shijie Jingji yu Zhengzhi; Dec. 14, 2008, OSC, CPP20090223671003.
12.Zhu Feng, “The Obama Administration Foreign Policy: Afterthoughts on our Fieldwork in America,” International and Strategic Studies Report, Center for International and Strategic Studies, Peking University, March 20, 2009.*
13.Liu Jianfei, “Chinese Foreign Strategy in Wake of the Financial Crisis,” Sousuo yu Zhengming; May 2009, Vol. 3*.
14.Ibid.
- Joined
- Oct 17, 2008
- Messages
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Fears grow of emerging market 'bubble'
The flood of cash into emerging markets could provide kindling for the next economic crisis. -AFP
http://business.asiaone.com/print/Business/News/Story/A1Story20101011-241726.html
Mon, Oct 11, 2010
AFP
By Andrew Beatty
WASHINGTON, Oct 11, 2010 (AFP) - Fears are growing that the flood of cash into emerging markets could provide kindling for the next economic crisis and has already fueled simmering currency disputes.
Amid sclerotic growth in the traditional strong markets of Europe, Japan and the United States, emerging giants like Brazil, China and India have become an increasingly attractive proposition to investors.
Billions have been poured into Brazilian bonds, Chinese real estate and Indian equities, which promise better returns than can be found in New York, Tokyo or London.
The Institute of International Finance has projected that around 825 billion dollars will gush into emerging economies this year, up 30 percent from 2009.
While rapidly developing economies might welcome new investors, the sudden rush of cash is poising a host of problems from rising home prices to stronger currencies that make exports less competitive.
"Already a very significant amount of money is following into some emerging economies," Haruhiko Kuroda, the head of the Asian Development Bank, told AFP. "If this situation intensifies it may become more difficult to manage," he warned.
But is not just the volume of cash that makes Latin American and Asian countries jittery.
"A lot of money flowing into emerging markets is short term, portfolio investment, bank loans and so on, which could quickly be reversed," Kuroda said.
If the economies of Europe, Japan and the United States were to pick up or any number of local crises struck, the bubble could quickly pop. Facing these risks, ever-more countries have begun to take matters into their own hands.
Brazil has doubled its tax on foreign inflows, while countries from South Korea to Colombia have tried to sterilize the impact of flows on their currency by buying up dollars.
"Measures must be introduced if necessary," said Kuroda, who pointed to some success stories.
"In a few countries like China the housing market has gone up quite sharply over the past few years. But even in China with various measures introduced by the government the housing market is adjusting."
But the measures are not always successful, according to Guillermo Ortiz a former governor of the Bank of Mexico, who recently addressed an IMF/CNBC forum. "Brazil... raised tax from two to four percent on foreign inflows and the real appreciated."
As the United States and Japan move to pump more cash into the economy, the rush capital flows, subsequent appreciation and intervention, may increase.
"The central banks are pumping huge amounts of liquidity, interest rates are at record lows so all this money is chasing yield and it is going to emerging markets, and everybody is trying to stop appreciation," said Ortiz.
"Until these tensions are resolved emerging markets will have to deal with volatility, high capital inflows and central banks will be under heavy political pressure to intervene, knowing perfectly well that this intervention are probably not going to get them very far."
"The only solution of course is to have some renewed spirit of cooperation," he added.
Members of the International Monetary Fund's policy-setting panel this weekend vowed to "address the challenges of large and volatile capital movements, which can be disruptive."
But that is unlikely to be enough to allay the concerns of countries like Brazil, whose finance minister Guido Mantega has pointedly criticized the IMF for being "reluctant to draw practical conclusions from its analysis." According to Ortiz: "We tend to speak globally and act unilaterally."
The flood of cash into emerging markets could provide kindling for the next economic crisis. -AFP
http://business.asiaone.com/print/Business/News/Story/A1Story20101011-241726.html
Mon, Oct 11, 2010
AFP
By Andrew Beatty
WASHINGTON, Oct 11, 2010 (AFP) - Fears are growing that the flood of cash into emerging markets could provide kindling for the next economic crisis and has already fueled simmering currency disputes.
Amid sclerotic growth in the traditional strong markets of Europe, Japan and the United States, emerging giants like Brazil, China and India have become an increasingly attractive proposition to investors.
Billions have been poured into Brazilian bonds, Chinese real estate and Indian equities, which promise better returns than can be found in New York, Tokyo or London.
The Institute of International Finance has projected that around 825 billion dollars will gush into emerging economies this year, up 30 percent from 2009.
While rapidly developing economies might welcome new investors, the sudden rush of cash is poising a host of problems from rising home prices to stronger currencies that make exports less competitive.
"Already a very significant amount of money is following into some emerging economies," Haruhiko Kuroda, the head of the Asian Development Bank, told AFP. "If this situation intensifies it may become more difficult to manage," he warned.
But is not just the volume of cash that makes Latin American and Asian countries jittery.
"A lot of money flowing into emerging markets is short term, portfolio investment, bank loans and so on, which could quickly be reversed," Kuroda said.
If the economies of Europe, Japan and the United States were to pick up or any number of local crises struck, the bubble could quickly pop. Facing these risks, ever-more countries have begun to take matters into their own hands.
Brazil has doubled its tax on foreign inflows, while countries from South Korea to Colombia have tried to sterilize the impact of flows on their currency by buying up dollars.
"Measures must be introduced if necessary," said Kuroda, who pointed to some success stories.
"In a few countries like China the housing market has gone up quite sharply over the past few years. But even in China with various measures introduced by the government the housing market is adjusting."
But the measures are not always successful, according to Guillermo Ortiz a former governor of the Bank of Mexico, who recently addressed an IMF/CNBC forum. "Brazil... raised tax from two to four percent on foreign inflows and the real appreciated."
As the United States and Japan move to pump more cash into the economy, the rush capital flows, subsequent appreciation and intervention, may increase.
"The central banks are pumping huge amounts of liquidity, interest rates are at record lows so all this money is chasing yield and it is going to emerging markets, and everybody is trying to stop appreciation," said Ortiz.
"Until these tensions are resolved emerging markets will have to deal with volatility, high capital inflows and central banks will be under heavy political pressure to intervene, knowing perfectly well that this intervention are probably not going to get them very far."
"The only solution of course is to have some renewed spirit of cooperation," he added.
Members of the International Monetary Fund's policy-setting panel this weekend vowed to "address the challenges of large and volatile capital movements, which can be disruptive."
But that is unlikely to be enough to allay the concerns of countries like Brazil, whose finance minister Guido Mantega has pointedly criticized the IMF for being "reluctant to draw practical conclusions from its analysis." According to Ortiz: "We tend to speak globally and act unilaterally."
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