It's China's paradox: the more it tries to please, the more it looks suspicious, writes John Lee.
Chinese soft power - getting its way through persuasion rather than carrots and sticks - has a long way to go, especially in Australia. To Beijing's frustration, the harder it tries to engage and impress the world - $US40 billion ($56 billion) spent on the Olympics - the more threatening China appears.
Even its leaders and top thinkers admit China's soft power is fragile. But it is not due to lack of trying. According to a former senior Chinese Foreign Ministry official, China is history's most self-conscious rising power. Enormous effort is spent on China's image. Beijing, for example, has more diplomats in more capitals than any other country, including the US. From the cream of the crop, they are the world's best trained diplomats, intensively instructed in the language and culture of their destinations. By next year, 500 Confucius Institutes will teach Chinese language and culture to more than 100 million people in 100 countries.
The idea is that by building stores of soft power, it will more effectively deploy globally its growing hard power resources, especially capital, and maximise returns and influence. Diplomatic efforts over the past 15 years convinced us of China's legitimacy as a rising great power. But many are yet to be convinced it will be a benign one.
With the shift of economic power from West to East becoming more apparent, this issue has become more important. Beijing performs a double act. It is desperate to promote China as a successful and confident country, legitimately authoritarian. On the other hand, Chinese leaders are profoundly aware of weaknesses that could bring down the regime and cause chaos throughout the country. Despite three decades of economic growth, for example, half of the people live on $US2 a day or less. Illiteracy has doubled since 2000. China has become the most unequal Asian country and one of the more corrupt. Officially recorded instances of mass unrest reached 87,000 in 2005. Chinese economists are worried about the sustainability of China's economic approach. While many in countries like Australia fear perceptions of growing Chinese strength, the Chinese Communist Party fears China's weakness.
As the Chinese President, Hu Jintao, repeatedly warns, hostile foreign forces have not given up on westernising and carving up a vulnerable China.
The image of a secure and confident China is a staged act. China remains an insecure power governed by an insecure regime. Yet the Communist Party has staked its legitimacy on returning prosperity and respect to China and its people. In an attempt to remain relevant and in control, the party has expanded - rather than reduced - its role and influence in Chinese society and economy. Rather than one-party rule being identified as the source of many modern Chinese problems, Beijing insists only a strong, authoritarian apparatus can steer the ship and avoid chaos in a country of 1.3 billion people.
Widening the party role has another purpose. The party regards all Chinese economic and social organisations as potential instruments of state. More control in more areas increases the state's diplomatic bargaining chips. This is part of Beijing's strategy in pursuit of "comprehensive national power", an all-encompassing concept at the root of China's soft-power image problem.
We now recognise that the hand of the state is never far from China's successful and prestigious organisations - those wanting to buy into Australian mining. The more influential Chinese individuals around the world are usually political insiders. State-controlled firms produce barely a quarter of China's output, but draw more than three-quarters of all domestic capital. Of about 1500 companies listed on China's two stock exchanges, fewer than 50 are genuinely private. The Communist Party is the party for elites.
It is rare to succeed without political connections. One-third of its 75 million members are successful entrepreneurs; one-third college graduates; and one-quarter professionals.
Unfortunately for Beijing, the depths of Chinese "state corporatism" - far exceeding levels in Japan, South Korea and Taiwan as those states rose - breeds distrust in the West. So, too, does the institutional opaqueness that Beijing exploits to dilute accountability and conceal vulnerabilities.
The party is convinced only its leadership can restore greatness to China. But many in Australia see it as a self-serving regime using the prosperity of the country to cling to power. Even when maximising profits, there is a suspicion state-controlled firms exist primarily to extend party power and influence.
Allowing China's top firms to buy into Australian companies will lead many to believe we are helping entrench Beijing's vast, authoritarian network. Chinese soft power is hitting a wall. Unless the party is prepared to loosen its grip, many people will continue to believe more demons and conspiracies hide in the shadows.
Dr John Lee is a visiting fellow at the Centre for Independent Studies. An updated version of his book Will China Fail? will be published by CIS this year.
The next big test for China's foreign investment policy will be Australia. Specifically, it will be the application by China's state-owned Chinalco to take its holding in Rio Tinto to 18 per cent, with bigger stakes in some prize Rio assets. The Federal Government, particularly Treasurer Wayne Swan, is considering the application. .. from previous ..
Chinalco - Rio Tinto deal falls through - view from the Global Times June 7th, 2009
China’s attempts to use the financial crisis and the collapse in commodity prices to increase their access to raw materials encountered a set back in recent days when Rio Tinto rejected Chinalco’s US$19.5bn offer for an enlarged stake in the company. In a double blow for China Inc, Rio Tinto are also exploring closer relations with fellow Australian mining giant BHP Billiton - which might put Chinese steel firms in an even more difficult position when it comes to negotiating for their purchases of iron ore - much of which come from Australia.
I reviewed an article in nationalist tabloid the Global Times and some of the posting’s to online discussion board the Strong Nation Forum to get a sense of how the news has gone down in China. A few points of interest:
A commonly expressed view is that Rio Tinto wanted China’s money but not to be subject to Chinese control. When rising iron ore prices gave them breathing space they started to shop around for a more palatable deal.
Ma Yu, who works for a research center under the Minister of Commerce, says that iron is a special industry where government controls are particularly severe, the failure of the Chinalco Rio Tinto deal does not spell the end of Chinese companies’ ‘going out’ policy.
A representative of the Chinese Metals Mining Association said that the problem was all the noise associated with China’s attempts to buy up mineral resources. If the strategy had been executed more quietly and with less obvious government backing it would have enjoyed more success, he said.
One poster to the Strong Nation Forum, which is linked to the People’s Daily, made the link to China blocking Coca-Cola’s acquisition of Huiyuan, pointing out that: ‘if we don’t let people into our fruit juice market, we can hardly expect others to allow us into their iron ore market.’
A few thoughts from me:
At US$19.5bn this was a substantial deal and its collapse will put a substantial dent in China’s outward FDI numbers for the year. To put it in perspective, in 2007 China’s entire outward FDI was only slightly more than US$20bn. It also raises questions about foreign attitudes to Chinese overseas acquisitions. A self-made Australian businessman ran a prominent campaign against the Chinalco Rio Tinto deal, with public adverts highlighting China’s dubious record on human rights. Ultimately, the decision was made at a commercial level, but had Rio Tinto not backed out the Australian government would have faced a difficult decision.
The failure of the deal also raises a question about what China can do with new flows into its stock of foreign exchange reserves. With a further fall in the value of the US$ widely expected, voices within China have been calling for a diversification in use of new reserves, including supporting Chinese companies’ ‘going out’ policy. If Chinese companies are going to face substantial obstacles in their going out then China will also be more restricted in how it can use new flows into its reserves.
Finally, many China commentators (including me) have confidently predicted that a combination of frozen credit markets and low commodity prices equal a great opportunity for China to buy up stocks of global raw materials. Cash for oil deals with Russia and smaller deals with medium-sized Australian iron ore miners demonstrate that this is a real trend. The failure of the Chinalco Rio Tinto deal, however, demonstrates that even deep Chinese pockets can’t buy everything, and the window of opportunity for China’s overseas commodities acquisitions might be closing. http://www.chinatranslated.com/?p=395 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ China arrest 'not linked to deal' Rio Tinto ticker
The four were arrested at the weekend
Australia's foreign minister has said he sees "no basis" to suggestions that the arrest of a mining executive in China is payback for a cancelled deal.
Stephen Smith's comments came as Chinese officials confirmed that Rio Tinto's Stern Hu and three others had been arrested on spying charges.
Australian media has speculated the arrests were sparked by Rio cancelling a $19.5bn (£12bn) Chinese investment.
Mr Smith said Australian officials were now trying to see Mr Hu.
The cancelled deal in question was Rio's announcement in February that it was to accept a further $19.5bn of investment from China's state-run aluminium group Chinalco.
The deal would have been a record Chinese investment in a foreign company, but Rio changed its mind last month, cancelling the agreement and instead launching a tie-up with fellow Anglo-Australian miner BHP Billiton.
Chinalco said at the time that it was "very disappointed".
Accusations 'surprising'
Mr Hu, a Chinese-born Australian national and Rio's main iron ore salesman in China, and the three other Rio employees were arrested on Sunday on charges of stealing state secrets.
The charges against the four carry a maximum term of life imprisonment.
Chinese foreign ministry spokesman Qin Gang said there was "sufficient evidence to prove that they have stolen state secrets and have caused huge loss to China's economic interest and security".
Mr Qin denied the case was connected to Rio's cancellation of the Chinalco deal, and called on the Australian government not to politicise the case, saying this "would be no good to Australia".
Mr Smith said Australian officials wanted consular access to Mr Hu "to satisfy ourselves as to his welfare, to satisfy ourselves as to his well-being and to get some indication from him as to how we can be of assistance".
He added that the spying accusations were "very surprising".
Rio has said in a statement that it has no evidence of spying.
"We have been advised by the Australian government of this surprising allegation," it said. "We are not aware of any evidence that would support such an investigation."
According to reports in China, an oil ore executive from the country's eight largest mill has also been arrested.,
Meanwhile, Australian newspapers have also speculated that the Chinese government is unhappy with continuing iron ore price talks that Rio Tinto is leading on behalf of the big global mining firms. http://news.bbc.co.uk/2/hi/business/8141766.stm
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