Getting along with China

by Shinji Fukukawa

Chinese Premier Wen Jiabao, delivering a government work report at the third session of the 11th National People’s Congress in March, claimed that China was “first in the world to realize economic recovery and positive turnaround” following the international financial crisis, and that its strategies for “reform, opening up and social modernization” brought about “new achievements.”

Last year, in fact, China’s economy grew 8.7 percent from the previous year, achieving V-shaped recovery by dint of large-scale stimulus measures that were implemented in October 2008. So it is strongly expected that China will replace Japan as the world’s second largest economy in 2010 and top the United States around 2030.

About the future of China, however, mixed expectations and concerns prevail around the world.

First is the question of the sustainability of China’s growth. The main source of China’s high economic growth was its policy of export-oriented industrialization using its advantage as a developing country. China is now the world’s largest production base for a great number of products. Its major indicators of economic development look roughly similar to those of Japan from the mid-1960s to around 1970. This suggests that China still has sufficient potential for more growth. Despite some concerns about labor shortage, it has lots of redundant workers in farming areas and labor is abundant in other areas that are conducive to development. So, an annual growth rate of around 6 to 8 percent seems feasible up to the 2020s if China is flexible in carrying out industrial relocations and labor migration.

But, as seen in its recent economic recovery, China has yet been unable to get out of the conventional growth pattern, and imbalance both internal and against other economies is a matter of great concern. There are fears of high growth accelerating inflation, rapid export recovery increasing market pressure for appreciation of the yuan, and high investment resulting in excess supply. The Chinese government is about to promote structural reforms led by domestic demand expansion, but it is impossible to predict whether its program will work well.

In addition, there is no doubt that China’s population will continue to decline and age rapidly, and that its growth momentum will slow as a result.

Another major concern is China’s domestic governance. The leadership of President Hu Jintao and Premier Wen is gaining people’s support, but the increasing income disparity and regional divisions can give rise to swelling popular discontent. There is deep-rooted criticism of rampant corruption among high-ranking officials of the Communist Party and the government. There is no guarantee that ethnic minorities will not revolt. Criticism is rising at home and abroad about China’s information control, symbolized by Google’s censorship dispute with China. As the country’s economic growth continues, voices seeking political freedom and respect for human rights will become stronger.

A third concern is China’s behavior in the international community. Its recent stance of giving top priority to its national interests is provoking criticism in Europe and the U.S. In response to such criticisms, Wen said after the NPC session that China would “positively” take part in international cooperation. Over the years Chinese leaders have constantly repeated that their country will never seek hegemony, but this has not dissolved the rest of the world’s anxiety.

China has expanded its military spending at a double-digit pace in the past decade and it became the world’s second- largest military power, surpassing France, last year. China explains that its defense-spending growth is due to increased military-personnel costs stemming from higher income levels, but there are strong concerns about lack of transparency. The expansion of its military influence toward the Taiwan Strait, the Senkaku Islands and the Pacific Ocean is causing fears among its neighboring countries. Further, it is unclear how China will contribute to a collective security framework in the region.

The international community expects China to make contributions befitting its economic strength. While insisting that it is still a developing nation, China appears hesitant to become a full-fledged world leader. It is also unclear how the Chinese will address important global issues such as promoting the new round of multilateral trade negotiations, reform of the international monetary system and the role of the United Nations.

The problem of global warming is another area of concern over China’s global role. China is already the largest greenhouse gas emitter. While pointing out advanced economies’ historical responsibility for today’s environmental problems, China has already passed Japan in accumulated emissions and now places third after the U.S. and the European Union. At the 15th U.N. Climate Change conference of December 2009, China failed to show a cooperative attitude, inviting criticism from other countries. China has vowed to reduce its greenhouse gas emissions by 40 to 45 percent per unit of gross national product by 2020, but if its economy continues to grow at the current rate, this goal could be satisfied even if its emissions in real terms increase by 90 percent. China urgently needs to implement reform measures so as to switch from “black growth” to “clean growth.”

Japan has a long history of exchanges with China. In 2002, Japan’s exports to the U.S. accounted for 28.5 percent of its total exports, while those to China accounted for 16.1 percent. But in 2009, exports bound for China represented 24.4 percent of Japan’s total exports, far above the 15.7 percent share bound for the U.S. Japan and China have strengthened their mutual reliance in the political, economic, technological and cultural fields, and are now aspiring to establish mutually beneficial strategic relations.

Japan, under a comprehensive foreign policy, must continue to promote candid dialogue and counsel with China from a broad standpoint while enhancing mutual trust. Furthermore, Japan should cooperate in implementing structural reform in China, and jointly pursue a new growth model. This is the way to meet the expectations of the world.

Shinji Fukukawa, formerly vice minister of the Ministry of International Trade and Industry (now the Ministry of Economy, Trade and Industry) and president of Dentsu Research Institute, is currently chairman of the Machine Industry Memorial Foundation.