by Sir Ronald Sanders, a former Caribbean diplomat, now corporate executive, who publishes widely on small states in the global community
Tuesday, July 26, 2005 Over the last few months, there has been an obvious increase in tension between the US and China. Last week there was a heating-up of animosity of the military side, and a cooling-down on the economic side.
The Caribbean is now tied to both these countries. So, where does the region stand in all this? It is worth looking at how the US-China relationship is unfolding in some detail.
On the military aspect, last week the US Defence Department issued a report to the US Congress in which it stated that while Chinese leaders declared that US$30 billion is being spent to strengthen the country’s military capacity, real expenditure could be two or three times higher.
The report also talked of China being a possible future threat to Asia.
The report was not universally embraced by US government agencies. Largely authored by the Defence Department, its language was reportedly toned-down by both the State Department and the National Security Council
But, just before the report was published, a Chinese Major General, Zhu Chenghu, said that China would use nuclear weapons against the US if it attacked China over Taiwan.
The official Chinese response to the US Defence Department Report condemned it for “unreasonably” and “rudely” attacking China’s modernisation of its armed forces, and pointed out the US spends nearly 18 times more than China on its military.
Much of this passed-by the rest of the world. It seems to be a war of words. And, this may be so for the time being, but there are deep US fears and suspicions about China’s military growth, and China itself is not about to cow tow to the US.
Storm clouds are gathering, that both sides would do well to dispel and major nations would be wise to try to mediate.
What did not pass-by the world was the development on the monetary side which caused a sigh of relief in Washington and other world capitals.
The US government had been calling on China to revalue its currency for many months as inexpensive Chinese goods swept into the US market pushing aside feeble competition from US producers. Indeed, the calls had become demands by US Congressmen, and there were increasing threats of applying heavy tariffs on Chinese imports.
After months of publicly refusing to revalue the Yuan, and telling the US to get out of industries such as textiles in which its companies are uncompetitive, last week the Chinese suddenly re-valued their currency which had been pegged to the US dollar for ten years; it is now tied to a group of currencies. Its value increased by 2.5%.
But while the news of the Yuan’s revaluation has been welcomed, a 2.5% increase is not likely to make a huge difference to the price of Chinese goods in the US and Europe, and the effect on Chinese imports will not be uncomfortably large either.
In fact, the greater effect of the revaluation will be felt in less well-off countries like the Caribbean where even a 2.5% rise in the cost of Chinese goods will be felt by the poor in those countries, like the Caribbean, whose currencies are linked to the US dollar.
China has already become a global economic force. Its economy grew by 9.5% in the first half of this year.
China’s exports to the European Union countries are rising so fast than they have almost displaced the US. In the first four months of this year, imports from China into the EU were 19% higher over the same period last year and were valued at US$54.5 billion. Imports from the US did not change.
Last week, a Chinese carmaker, Nanjing Automobile bought the assets of the UK firm MG Rover , the name associated with British automobile production for over a generation.
China has already replaced the US as Japan’s biggest trading partner with trade between the two representing 20% of Japan’s trade last year. Trade with the US accounted for 18% of Japan’s total, and increasingly Japan is becoming reliant on China for investment.
Despite the chest beating by US Congressmen, the finances of the US have also become reliant on China. The US is one of the most indebted countries in the world, and three-quarters of its debt is bought by foreigners with China the biggest buyer of all.
China bought US$200 billion US Treasury bills in 2004 and possibly as much as US$300 billion already this year according to noted US Economist Paul Krugman. He says that China is bankrolling America’s huge budget deficit to the tune of US$1 billion per day.
The latest US concern about China is a heady mixture of nationalism, security and economics. The Chinese National Offshore Oil Corporation (CNOOC) has put in a US$18.5 billion cash bid to acquire control of Unocal which is an energy company with a global reach. Its rival for the acquisition is Chevron whose cash offer is still 6% behind CNOOC’s.
Many in the US are worried about China controlling a huge oil and gas company at a time when the industrialised nations, especially the US, are scrambling for access to oil all over the world.
It is still left to be seen whether the Federal Committee on Investments in the US (CFIUS) will approve the Chinese purchase if Unocal’s board agrees.
But, the Chinese government has allowed US$48 billion in direct investments by US companies into China. Therefore, it is not a situation in which China has closed its doors to outsiders while seeking a place in their economies.
The increasing wealth of the Chinese is also making them a market for world wide tourism. Chinese can get passports more easily now than in the past, and they are being allowed to up to $6,000 if they go on a trip. Europe has seen very large volumes of Chinese travellers over the last year; shortly, so too will the rest of the world.
Against this background, China seems to be well on its way to winning any war to wield economic clout in the world.
The question of a military build-up and Chinese expansionism in Asia is another question altogether, and much more difficult for the world to grip, though it must.
Recently, there has been an improvement in China’s relationship with India. The two countries have agreed a road map to resolve border disputes but wariness still exists between them. Similarly, while Japan is highly dependent on China for trade and investment, there is an ancient hostility that underlies their relationship. And, Taiwan, of course, continues to be a vexed issue with America and Japan agreeing that their military alliance should be to protect Taiwan from any attempt by China to re-unite it to the mainland by force.
Small countries, such as those in the Caribbean, are spectators in the relations between powerful countries like the US and China. But, even as spectators, the region need not be silent and could still play a part, however small, in how the relationship unfolds.
China has become an important aid donor and investor in the Caribbean, notwithstanding the remaining links of a few countries to Taiwan. The United States is a neighbour to which the region has many long established ties and from which many benefits are derived.
To the extent that it can, the Caribbean should use its friendly relations with both countries to encourage a constructive dialogue between the US and China whose peaceful relationship would be a boon to each of them and to the world.
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