TFF Associates & Themes Blog

By Jonathan Power

August 2nd 2016.

How far behind the West is China? Is its economy still booming so it could within 20 years overtake America? Is its military becoming of such a strength it will take the big decision to confront the US navy in the South China Sea?

While it is obvious that the Chinese leadership is much more far sighted and cautious than, say, Donald Trump, can one conclude with 100 % certainty that potentially dangerous clashes won’t occur?

The communist leadership believes that before long it will be the world’s biggest economy. Yet if one looks at national income per head it is way down the league table of economic achievers. Size is not everything. Moreover, if one starts from a low base, as China did before the paramount leader, Deng Xiaoping, introduced capitalism in 1978, fast rates of growth, as reported in government statistics, overstate what is happening in many parts of the country.

Away from the booming coastal areas China is extraordinarily backward, with the countryside and smaller towns looking like, at best, Central America, at worst India.

The US, Japan, South Korea and Europe will always have the technological edge. It’s true for most things that the West can do better whatever China does. Compared with past rising powers – Brazil, South Korea and Japan – China has a much wider technological gap to close with the West. There are some areas of the China’s economy, such as gene editing and 5G telephony, where Chinese experts are among the best, but they depend to some extent on Chinese who have spent years in Silicon Valley and have returned home.

Much of the investment in top end Chinese businesses and expertise come from Taiwan and Hong Kong. Much of it comes from ethnic Chinese not living in China. Some of it has been recycled through Hong Kong to avoid taxes. It is foreign venture capitalists who fund local start-ups.

Half of all Chinese exports come from parts that have been imported into China for assembly. Moreover, according to the World Bank, the vast majority of these exports are not made by Chinese firms but foreigners from the rich countries.

When it comes to intellectual property the US is far and away the leader with $128 billion in receipts. China’s is $1 billion. In the US around 14,000 patents are registered each year. In China the figure is only 2,000.

Besides this, the government pours untold billions of dollars into state-owned companies that exhibit chronic inefficiency and lack of innovation, and often enough lose money hand over fist. The Economist wrote recently that “most Chinese companies are still plodders”. In any serious military clash many, if not most, of the foreign interests would pull out.

The national income figures are suspect. Many economists doubt their validity. Moreover, as with all countries, the wrecking of the environment paradoxically boosts GNP, even though in some parts of China pollution is knocking 5 years off expected longevity.

Translating this laggard economy into military power is a fraught business.

The US is a super power. Supported by its NATO partners (who contribute 75% of the alliance’s spending in Europe, thus freeing the US to build up its military might elsewhere, including the South China Sea) it is unbeatable in state to state conflict.

The US is far ahead in such weapons as nuclear-powered submarines (which are now totally silent), satellites and transport aircraft, to mention a few. In 2012 the US spent $79 billion on military Research and Development, almost 13 times as much as China.

As professors Stephen Brooks and William Wohlforth, wrote in the June issue of Foreign Affairs, “The US is a far less threatening super power than the Soviet Union was. However aggravating China find US foreign policy, it is unlikely to engender the level of fear that motivated the US during the Cold War”.

What incentive does China have to try and catch up with America in the military arena? Not that much. When one boils it down there are only two areas where serious confrontation could break out. One is the South China Sea and the other is Taiwan. But the Taiwanese have shown over decades that they have learnt how not to provoke China. It will not go to war over small uninhabited islands.

The Chinese are much more likely to be aggressive in economic relations. In Africa and Latin America they have fast increased their trading relationship. In Africa their aid is going into infrastructure projects. Recently, it created a rival to the World Bank, the Asian Infrastructure Investment Bank, to make possible massive lending in Asia. Stupidly the US was against this although Europe was for.

There is no good reason to overly worry about the growth of the Chinese economy and its ability to fund a beefing up of the military. There is nothing to fear but fear itself.

Copyright: Jonathan Power